Mark Zuckerberg will head to Brussels today for the European leg of his apology tour. A live streamed event in which MEP’s will question the Facebook (NASDAQ:FB) CEO on anything from the Cambridge Analytica scandal, to Europe’s new privacy laws to the social networks role in elections.
Whilst this is likely to help improve relations between Facebook and the EU, we are not expecting any ground-breaking revelations. Mark Zuckerberg is expected to stick closely to the script of his appearance before Congress, where he underwent a 2-day grilling on how he handled the data of its tens of million of users. He is expected to give a similar apology for not taking a broad enough view on the firm’s responsibilities - be that for fake news, foreign interference in elections or developers misusing people’s information.
This will once again focus attention on the regulation of tech giants. The regulatory landscape is becoming more challenging for tech giants to navigate particularly in Europe where the EU has been more proactive in this field. Zuckerberg’s appearance comes just days before the introduction of new European regulation for protecting data privacy – the General Data Protection Regulation (GDPR).
Whilst Facebook’s share price dived 15% on the Cambridge Analytica scandal, the price has recovered quickly, with the help of Q1 results smashing expectations. Just two-month post scandal Facebook’s share price had pared all the losses and was only $7 short of its all-time high.
Facebook Q1 smashed expectations
The overriding concern was that the Cambridge Analytica scandal would impact on Facebook’s advertising revenue. Up until now advertisers have had a fairly free rein as they are able to use data for more effective, targeted advertising. Yet the Q1 results showed few signs of negative impact from the scandal because the Q1 statement covered January through March, therefore not reflecting the fallout from the scandal which occurred mid-March. Q2 results will be more telling. Facebook have said that some advertisers paused spending following the scandal, they have since picked up again, so the impact is expected to be limited.
Regulation under the spotlight
The regulatory crack down could potentially make Facebook a less attractive site for advertising, leading to a decline in the tech giant's main revenue supply. So far investors are showing few signs of concern and the recent scandals have not proved to be serious hurdles to the firm’s ability to make money. However, that could change going forward. Regulation is no doubt the big threat but whether that actually transfers into a loss of revenue or users still remains unclear.
Facebook results attract significant attention under normal circumstances, but we expect an increase in attention and volatility heading into the Q2 figures late July.
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