Investors are very worried about how new privacy rules in Europe are going to impact Facebook’s advertising business.
That much was abundantly clear on Wednesday during Facebook’s Q1 earnings call, in which executives took numerous questions from Wall Street analysts about what impact the new regulations, known as GDPR, might have when they go into effect next month.
Facebook’s general response: We’ll be fine.
CFO Dave Wehner first addressed the looming GDPR regulations in the company’s opening statement, confirming that Facebook user growth in Europe may slow or even decline as the company gets people to agree to updated privacy guidelines required by the laws.
“We anticipate a couple of impacts,” Wehner said. “First, as you might expect, we believe that European MAU and DAU may be flat to slightly down sequentially in Q2 as a result of the GDPR rollout. Second, while we do not anticipate these changes will significantly impact advertising revenue, there is certainly the potential for some impact, and we will be monitoring this closely.”
Later on the call, an analyst brought up a great point: Facebook has promised to bring its GDPR policies to all of its users worldwide. If that is indeed happening, shouldn’t we anticipate a decline in usage or growth globally, not just in Europe?
COO Sheryl Sandberg suggested that, no, this won’t be the case, because the new policies won’t be rolled out to everyone in the same way.
“We’re going to make all the same controls and settings available [everywhere], which gives people the same opportunities to make the same choices,” she answered. “It’s not going to be exactly the same format, it’s going to be localized instead for different parts of the world.”
That’s not entirely clear, though, as part of the GDPR requirement is that companies obtain clear consent from users about data collection. If they’re following the GDPR rules globally, they would theoretically be asking all users to opt-in to data collection in the same way users will need to in Europe. We’ve emailed Facebook for a clarification.
In either instance, Facebook executives claim they’re not really worried about GDPR regulations hurting the business in a significant way. Toward the end of the call, one analyst asked Facebook for its GDPR “doomsday scenario,” which did prompt a helpful response.
“Depending on how people react to the controls and the ads settings, there could be some limitations to data usage,” Wehner said. “We believe that those will be relatively minor. Depending on how those controls are adopted and set, there is a potential to impact targeting for our advertisers. Obviously if they are less able to target effectively, they’ll get a lower ROI on their advertising campaigns. They’ll then bid differently into the auction.”
Translation: If people choose to share less with Facebook, it makes targeting harder and more expensive, which means advertisers might not spend as much.
But even then, that possibility was brushed off as nothing serious.
“I don’t think we see a real doomsday scenario here,” he added. “I think we see an opportunity to really make the case [for targeted ads].”
Facebook, and everyone else who collects data online, will need to comply with GDPR regulations beginning on May 25. The company has already made steps to do that, including updated terms of service and new data policies that started rolling out in Europe last week.
Is Facebook going to launch a subscription service?
Ever since Facebook’s Cambridge Analytica scandal came to light, people have suggested that the company might look for alternative business models that don’t rely on targeted advertising. The idea that Facebook might explore something else, like a subscription model, was actually floated twice during the call, and both times it was dismissed.
“We think that ads is a great business model that is aligned with our mission,” Zuckerberg said. “We want to build a service that can help connect everyone around the world, so we want to offer that service for free and have it be affordable, and [ads] is completely aligned with what we’re trying to do.”
Are people spending less time on Facebook? Executives won’t say.
One of the more interesting questions was whether or not Facebook users are spending less time on the site as a result of recent changes, namely a News Feed algorithm update from January that Zuckerberg said would result in less time spent.
Last quarter, Facebook reported that users were spending 50 million fewer hours per day on the service. This quarter, Zuckerberg and Wehner were much more vague, and ultimately declined to answer the question.
“We’re not providing a specific update on that,” Wehner said.
Zuckerberg did say that the changes mean people are sharing and interacting more in some scenarios, recording less “passive video consumption” in others, and concluded that the changes are “doing what we expected that they would do.”
Since back in January Facebook expected them to result in less time spent, and executives refused to answer the question outright on Wednesday, we can probably assume that time spent is indeed decreasing.
Investors liked what they saw from Facebook’s earnings and heard on the call. Facebook stock was up almost 7 percent in after-hours trading.