Can Meta continue to dream: caught in the EU data privacy storm, the market value once evaporated more than $200 billion

21st Century Business Herald reporter Hu Huiyin reported that after four consecutive clouds, Meta's stock price finally ushered in a rebound.

On February 10, the shares of Meta Platform (formerly Facebook), the "meta-universe company", closed up nearly 5.4%, the largest one-day increase since April 29, 2021. After the stock price recovered, Meta's market value also rebounded to $631.4 billion, but it was far less than when it sat on the trillion-dollar market value.

The recent Meta is hard to hide its fatigue. First, the stock price fell sharply due to the financial report data, and then Meta was negatively hampered by the obstruction of data privacy negotiations with the European Union.

At one point, Meta even threatened to shut down its services in Europe.

Qian Wenying, an Internet technology analyst and researcher at the Case Center of China Europe International Business School, said in an interview with the 21st Century Business Herald that from the current situation, the EU data protection law will have a greater impact on Meta's business in Europe in the short term, and the EU's tightening of data protection supervision will be a landmark event, which may have a deeper impact on global data security control.

Under the dual pressure of stricter data regulation and a slowing growth curve, can Meta continue to dream for investors?

Survive in the "cracks" of policy

The eu's new data protection law can be said to have caught Meta off guard.

Companies that collect user data within the EU are required to save and process the data on servers in Europe, as required by the new EU data protection law. However, Facebook and Instagram's data is partly in U.S. servers. As a result, Meta and the European Commission are deadlocked over user data backhaul.

In fact, as early as 2016, the European Union had established the General Data Protection Regulation (GDPR), which is the most stringent data protection law in history. It can be said that the protection and supervision of personal information in this law has reached an unprecedented height. European regulators are currently drafting new legislation to provide guidance on how to transfer user data from European citizens to the United States, and have been negotiating with the United States for months to replace a transatlantic data transfer agreement.

Negotiations remained inconclusive and Meta could not sit still. In its recent annual report to the U.S. Securities and Exchange Commission, Meta warned the European Union that the General Data Protection Regulation prevents the transfer of users' personal data back to U.S. servers and that the company is likely to pull Facebook and Instagram out of Europe.

As soon as these words came out, they stirred up thousands of waves. However, it did not wait long for the news to ferment, but Meta came forward to clarify, saying that it had absolutely no intention and plans to leave Europe, and said that Meta, like many other companies, organizations and service providers, relied on data transmission between the European Union and the United States.

In Qian Wenying's view, Meta's fierce reaction is not difficult to understand. "According to Meta's business model, its main source of profit is the advertising business that relies on user big data. Nowadays, the deepening of data protection law has become a trend not only in the European Union, but also in the world, and may have a deeper impact on global data security control. She told reporters.

It industry commentator Zhang Shule also pointed out to the 21st Century Business Herald reporter that the new EU data protection law focuses on the compliance of data services, which is equivalent to the need for Meta to rebuild the data transmission framework and underlying services. He believes that this is likely to pose a domino-style "data protection" challenge for Meta's related business in other countries and regions.

Although it is widely believed that Meta will not actually withdraw from the European market, it is still doubtful that it has chosen to clarify itself.

Qian Wenying said bluntly that Meta's initiative to exit the market at this time to obtain bargaining power is not a wise choice. She analyzed to reporters that Meta should pay attention to the European market, "because this is not just a market, but the world is looking at the Internet giant's attitude towards data security and user privacy." She said that Internet companies like Meta, which mainly rely on big data technology to obtain advertising revenue, should explore how to develop big data marketing in an environment that pays more and more attention to data privacy.

In fact, the importance of the European market to Meta can be seen in its revenue share. According to Meta's fourth quarter financial report for fiscal 2021, the regional composition of Meta's main business is that the United States accounts for 41.02% of revenue, Europe accounts for 24.64% of revenue, and Asia-Pacific accounts for 22.67% of revenue.

The huge commercial value of the European market is something that Meta cannot abandon, and from this point of view, it can only continue to play games with the EU. But at this time, Meta suffered from the impact of the UK Cybersecurity Law. It is reported that the UK Cybersecurity Law bill recently added new content to force social media companies to take faster action against illegal content. Previously, Meta had been accused of not being able to effectively regulate multilingual content, and its algorithm was the culprit in spreading fake news and intensifying ethnic antagonism. The British minister even warned that if Meta did not comply with the bill, the platform's founder and CEO Mark Zuckerberg could be put in jail.

Earlier, Meta's live chat app Whatsapp was fined a record 225 million euros by EU member Ireland for its antitrust storm. Next, it may face greater challenges. UK and EU regulators are collaborating on antitrust and data privacy, meaning large tech companies will face more regulatory scrutiny in 2022.

Whether the new business can support the market value

In fact, the most direct reason for the decline in Meta's stock price is its poor financial performance.

On February 3, Meta announced its fiscal 2021 fourth quarter and full year earnings, followed by an avalanche of its stock price, plunging 26% at one point, and its market value evaporated by more than $200 billion. Although the financial report has caused the stock price to fluctuate sharply, it can be seen from the specific data that Meta is actually still growing.

According to the financial report, Meta achieved revenue of $33.67 billion in the fourth quarter of fiscal 2021, an increase of 20% year-on-year. But on the other hand, Meta's performance on a number of indicators has not been as expected. For example, the fourth quarter net profit was less than $10.3 billion, lower than the expected $10.9 billion, down 8% year-on-year, the first net profit decline since the second quarter of 2019. In addition, the earnings data also shows that Meta's guidance for the first quarter of 2022 is lower than expected, with expected revenue between $27 billion and $29 billion, while the market generally expects more than $30.1 billion.

More fatal to investors than the slowdown in performance growth is the stagnation of Meta user growth. According to the financial report, Meta's daily active users in the fourth quarter were 1.93 billion, unchanged from the previous quarter; the monthly active users of 2.91 billion were also the same as the third quarter. For a company like Meta, which is driven by user numbers, the stagnation of user growth may mean that its growth logic is about to change significantly.

Meta user growth has stagnated, and there are some factors that age the user base, but the greater pressure may be competition from other applications, of which TikTok is the most prominent. In September 2021, TikTok announced that its global monthly active users have exceeded the 1 billion mark.

In the face of increasingly fierce external challenges, Meta wanted to use the meta-universe as a new growth point, but it is clear that the new business is still in a fledgling state. For the first time, Meta disclosed the financials of its Reality Labs division, which includes Meta's meta-universe strategy, including hardware, software and content related to AR (augmented reality) and VR (virtual reality). According to the financial report, the Reality Labs division experienced huge net losses in 2019, 2020 and 2021, and the amount of losses expanded year after year, at $4.5 billion, $6.62 billion and $10.19 billion, respectively. Arguably, the sector's losses weighed on Meta's overall profitability last year. Meta's chief financial officer also said it expects meta-universe's operating losses to also "significantly increase" in 2022.

The metacosmic strategy also needs to be supported, which undoubtedly tests Meta's "hematopoietic" ability.

At the performance meeting, although the meta-universe is still a key project of Meta, Zuckerberg also listed the development of the short video social platform Reels as the company's top priority this year. The shift to the short video space is largely due to seeing the rise of TikTok.

But the doubt is that since Reels is currently mainly tied to the Instagram platform, the new contribution to users may not be high, and it is more of an internal flow between ecosystems. For the profit prospects of the new business, Zuckerberg also said that Reels' profits are meager and may have limited growth in advertising revenue in the short term.

Meta's new business is not yet mature, and the outside world has once again set its sights on the meta-universe business with a strong "story". Although the current meta-universe business is still losing money, Zhang Shule told reporters that the meta-universe, as a new development carrier, just undertakes Meta's current main business layout, "so the follow-up must also look at Meta's ability to expand in the meta-universe to measure whether the layout of its business is reasonable." ”

Qian Wenying also holds a similar view, saying that it will take time for the metaverse to move towards more mature commercial applications, but the advance layout and preparation of Meta have at least occupied the opportunity and have more possibilities for continued success in the future.

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