Facebook, Twitter Say Europe's Privacy Law Causing User Drop

(Bloomberg) --Amid a plummeting share price, Facebook Inc. wants panicked investors to believe Europe’s strict General Data Protection Regulation is to blame for fewer people using the social network in the region. EU lawmakers disagree.

The new law came into force on May 25 and forced companies that hold data on EU citizens to obtain “unambiguous” consent to collect personal information. Facebook knows a lot about what people are interested in, and makes that audience easily available to advertisers. That’s fueled rapid revenue growth, billions of dollars in profit, and a surging stock price in recent years.

More than $100 billion of those market gains were wiped out Thursday after Facebook reported sales and user growth numbers that disappointed Wall Street. The company lost about 1 million of European monthly active users in the second quarter, leaving it with 376 million. Daily users fell more. Chief Financial Officer David Wehner blamed the decline on the GDPR roll out.

“We saw the declines that we anticipated from GDPR,” he said. “And I would say there, really, those impacts were purely due to the GDPR impact, not other engagement trends.”

Facebook isn’t alone in blaming the new regulation. On Friday, Twitter Inc. said the law would contribute to a further decline in active users of its service, while on Thursday Nielsen Holdings Plc cited GDPR and changes to data privacy among reasons for poor performance.

Facebook’s second-quarter results Wednesday covered the reporting period since GDPR kicked in. But it was also the first full quarter since the revelations that personal information on as many as 87 million users ended up in the hands of Cambridge Analytica, a political consulting firm that worked on Donald Trump’s presidential campaign. Congressional hearings on Russia’s use of Facebook and other social media to sow political discord around U.S. elections also happened in the second quarter.

Some European lawmakers said the scandal was a more significant driver of user disengagement than GDPR.

“I would not rule out that allegations of enabling interference in democratic elections in the wake of the Cambridge Analytica scandal have played an important role as well here,” said Marietje Schaake, a member of the European Parliament from the Netherlands, wrote in an email. “Blaming a law could be an easy way out for the company.”

Andrea Jelinek, who leads EU authorities in charge of policing the bloc’s data privacy policies, said blaming Facebook’s growth drop on GDPR “does not take into account recent developments.”

“GDPR went into application amid a succession of Facebook scandals involving Cambridge Analytica and other apps,” she said. “If GDPR has changed anything, it’s that users are now more aware of their rights and ready to exercise them.”

Facebook’s GDPR finger-pointing contrasts with the milder opinions recently discussed by other technology company bosses.

Nir Zohar, chief operating officer of website builder Wix.com, said on a Wednesday earnings call that the web-design company had seen “no impact” on its business as a result of GDPR.

Sundar Pichai, chief executive officer of Google, told analysts on a Monday conference call that it was “too early to tell” how the new European regulation was going to affect the search giant’s business.