Facebook could lose $2.8 billion of its revenues under GDPR

  • Facebook's revenues could be reduced by 7% when GDPR comes into effect, according to Goldman Sachs.
  • The penalty for breaking the law is 4% of Facebook's global revenues, suggesting that it might be cheaper for Facebook to break the law than to obey it.
  • That's the worst-case scenario. Goldman expects Facebook to be largely successful in persuading users to continue giving up their data.

Facebook's revenues could be reduced by 7% (about $2.8 billion) when the General Data Protection Regulation (GDPR) comes into effect in Europe in May, according to an analysis by Goldman Sachs. The penalty for breaking the law is 4% of Facebook's global revenues, suggesting that it might be cheaper for Facebook to break the law than to obey it.

The new law, coupled with an impending new EU ePrivacy rule, will require online services to obtain permission from all their users for any data they take. The law is intended to prevent the widespread use of privacy-infringing data such as that involved in the Cambridge Analytica scandal.

Goldman's Heather Bellini and her team of analysts believe Facebook will be largely successful in persuading its users to give Facebook the privacy permissions it wants. Its estimate is a worst-case scenario. However, "recent public scrutiny of data management practices at Facebook may have a tempering effect on citizens’ willingness to opt-in, especially in the near-term," the Goldman team said in a note to clients. 

RELATED: Take a look at the Cambridge Analytica scandal:

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A man fixes posters depicting Cambridge Analytica's CEO Alexander Nix behind bars, with the slogan 'Our Data Not His. Go Straight To Jail' to the entrance of the company's offices in central London on March 20, 2018. The European Parliament on Tuesday invited Facebook chief Mark Zuckerberg to speak following revelations that a firm working for Donald Trump's US presidential campaign harvested data on 50 million users. Facebook has faced worldwide criticism over the claims that Cambridge Analytica, the UK data analysis firm hired by Trump's 2016 campaign, harvested and misused data on 50 million members. / AFP PHOTO / Daniel LEAL-OLIVAS (Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)
PARIS, FRANCE - MARCH 20: In this photo illustration the logo of the strategic communication company 'Cambridge Analytica' is seen on the screen of an iPhone in front of a computer screen showing a Facebook logo on March 20, 2018 in Paris, France. Cambridge Analytica is accused of collecting the personal information of 50 million users of the Facebook social network without their consent and would have used it to develop software to predict and influence voter voting during the campaign American election according to the New York Times and the Guardian. Facebook share price fell by more than 5% Monday shortly after the opening of Wall Street. (Photo Illustration by Chesnot/Getty Images)
LONDON, UNITED KINGDOM - MARCH 20: A protester called Heiko Khoo sticks posters of Alexander Nix behind bars onto the windows of the offices in a demonstration against Cambridge Analytica on March 20, 2018 in London, England. PHOTOGRAPH BY Matthew Chattle / Barcroft Images (Photo credit should read Matthew Chattle / Barcroft Images / Barcroft Media via Getty Images)
Christopher Wylie, a whistleblower who formerly worked with Cambridge Analytica, the consulting firm that is said to have harvested private information from more than 50 million Facebook users, speaks at the Frontline Club in London, Britain, March 20, 2018. REUTERS/Henry Nicholls
A man films Christopher Wylie, a whistleblower who formerly worked with Cambridge Analytica, the consulting firm that is said to have harvested private information from more than 50 million Facebook users, for a Facebook live cast as he speaks at the Frontline Club in London, Britain, March 20, 2018. REUTERS/Henry Nicholls
Christopher Wylie, a whistleblower who formerly worked with Cambridge Analytica, the consulting firm that is said to have harvested private information from more than 50 million Facebook users, arrives at the Frontline Club in London, Britain, March 20, 2018. REUTERS/Henry Nicholls
A man wheels storage crates from the building that houses the offices of Cambridge Analytica in central London, Britain, March 20, 2018. REUTERS/Henry Nicholls
People walk past the building housing the offices of Cambridge Analytica in central London, Britain, March 20, 2018. REUTERS/Henry Nicholls
People walk past the building housing the offices of Cambridge Analytica in central London, Britain, March 20, 2018. REUTERS/Henry Nicholls
Alexander Nix, CEO of Cambridge Analytica arrives at the offices of Cambridge Analytica in central London, Britain, March 20, 2018. REUTERS/Henry Nicholls
A man films Christopher Wylie, a whistleblower who formerly worked with Cambridge Analytica, the consulting firm that is said to have harvested private information from more than 50 million Facebook users, for a Facebook live cast as he speaks at the Frontline Club in London, Britain, March 20, 2018. REUTERS/Henry Nicholls
NEW YORK, NY - MARCH 19: Traders and financial professionals work ahead of the closing bell on the floor of the New York Stock Exchange (NYSE), March 19, 2018 in New York City. The Dow Jones industrial average dropped over 330 points on Monday. Shares of Facebook dropped nearly 7 percent after news broke that analytics firm Cambridge Analytica was able to collect information on 50 million people's Facebook profiles without their consent. (Photo by Drew Angerer/Getty Images)
PARIS, FRANCE - MARCH 20: In this photo illustration the logo of the strategic communication company 'Cambridge Analytica' is seen on the screen of an iPhone on March 20, 2018 in Paris, France. Cambridge Analytica is accused of collecting the personal information of 50 million users of the Facebook social network without their consent and would have used it to develop software to predict and influence voter voting during the campaign American election according to the New York Times and the Guardian. Facebook share price fell by more than 5% Monday shortly after the opening of Wall Street. (Photo Illustration by Chesnot/Getty Images)
NEW YORK, NY - MARCH 19: Traders and financial professionals work ahead of the closing bell on the floor of the New York Stock Exchange (NYSE), March 19, 2018 in New York City. The Dow Jones industrial average dropped over 330 points on Monday. Shares of Facebook dropped nearly 7 percent after news broke that analytics firm Cambridge Analytica was able to collect information on 50 million people's Facebook profiles without their consent. (Photo by Drew Angerer/Getty Images)
HOLBORN, UNITED KINGDOM - MARCH 20: Chief executive of Cambridge Analytica Alexander Nix arrives at the office near Holborn on March 20, 2018 in Holborn, England. PHOTOGRAPH BY Matthew Chattle / Barcroft Images (Photo credit should read Matthew Chattle / Barcroft Images / Barcroft Media via Getty Images)
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They also noted that Facebook intends to make GDPR-style controls available to all users worldwide, even though the law primarily affects only business done in Europe. About one quarter of Facebook's revenue comes from Europe, and 20% of its users are European. Facebook has more European users than American ones.

The Goldman analysis accounts for the potential "impact of a decline in users or total time spent on Facebook in Europe, as well as the potential for declines in ad pricing based on lower effectiveness should the company be forced to leverage contextual vs. targeted advertising."

Thus, "a 10% decline in total time spent on Facebook in Europe (and therefore, total ad impressions) and a 20% decline in pricing would result in a 6.8% decline in total advertising revenue for the company," Bellini writes.

The penalties for not following the GDPR rules run up to 4% of global revenues. In Facebook's case that would be about $1.6 billion (£1.1 billion).

Goldman has a buy rating on FB.

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