Facebook and Meta are having a hard time. After the company's quarterly report, Meta stock fell by around 25% wiping $251 billion from the company's market cap — the biggest drop in its valuation to date. Even though Mark Zuckerberg says that Facebook is reinforcing its efforts and building a new ad infrastructure that would enable the company to target ads to iOS users, the social media company could be in a lot of trouble.
In the report submitted to Securities and Exchange Commission by Meta, the company has outlined a scenario where it will have to shut down Facebook and Instagram in Europe. Currently, Meta processes its data across the US and Europe. Meta says its processing of data across continents is crucial for its business — both operationally and for ad targeting. However, Europe's new laws require users' data to be kept (and processed) on Europe's servers only.
Meta has been unable to comply with the new European rules. Since Meta has been unable to comply with the new data-sharing agreements, it says that it will no longer be able to offer significant services in Europe, including Instagram and Facebook.
In the report submitted to Securities and Exchange Commission, Meta says:
If a new transatlantic data transfer framework is not adopted and we are unable to continue to rely on SCCs or rely upon other alternative means of data transfers from Europe to the United States, we will likely be unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe, which would materially and adversely affect our business, financial condition, and results of operations.
Shortly after the news broke, London-based CityAM reached out to Meta for a statement. Meta's VP of Global Affairs, Nick Clegg, responded by saying that the new rules could have a bad effect on all business owners. "The impact would be felt by businesses large and small, across multiple sectors," he said.
"While policymakers are working towards a sustainable, long-term solution, we urge regulators to adopt a proportionate and pragmatic approach to minimise disruption to the many thousands of businesses who, like Facebook, have been relying on these mechanisms in good faith to transfer data in a safe and secure way," Clegg told CityAm.
The statement given by Clegg is true to some extent. Many businesses rely on Facebook and Instagram ads to thrive, not only in Europe but the whole world. The impact of shutting down Instagram and Facebook in Europe would have a detrimental effect on these businesses. While the job of the report to SEC is to outline the challenges a company faces to its investors, analysts, and regulators, it's also a convenient way to broadcast a message.
It remains to be seen what Meta and European regulators do with the situation, but with the statement, Meta has sent its threat message to the lawmakers.