European Union warns Meta that it hasn't yet fixed its pay-or-consent advertising model, which could lead to regulatory actions

European Union warns Meta that it hasn't yet fixed its pay-or-consent advertising model, which could lead to regulatory actions

The European Union has warned Meta Platforms Inc. that it has not yet fully complied with the Digital Markets Act (DMA) regarding its pay-or-consent advertising model. This warning comes as the EU considers imposing daily fines on Meta, potentially reaching up to 5% of its global daily revenue [1].

In April, the EU fined Meta €200 million (approximately $234 million) for violating the DMA between November 2023 and November 2024. The EU's main concerns include the lack of a truly equivalent free option and the pressure exerted on users to consent to targeted advertising [2]. Meta has responded by asserting that its current offerings align with DMA requirements and that the EU is discriminating against its business model [1].

Meta's stock traded lower on Friday morning following the Reuters report, amid broader market weakness. The company's stock has added 22% year-to-date and over 39% in the last 12 months [2]. The potential daily fines could significantly impact Meta's cash flow and revenue, especially in its most profitable market [3].

The EU's warning and potential fines signal a broader trend of increased regulatory scrutiny for Big Tech companies. The EU's DMA and GDPR frameworks are becoming templates for global regulators, with the FTC and other U.S. agencies also scrutinizing Big Tech's data practices and market power [3].

Investors should consider the regulatory risks when evaluating tech stocks. Key considerations include revenue reliance on ad models or data monetization, geographic exposure, and compliance costs [3]. For now, investors should reduce exposure to firms with non-compliant business models, favor companies with diversified revenue streams, and monitor regulatory actions in the U.S. and EU [3].

The regulatory sword hangs heavy over Big Tech, and investors must reassess valuations with a lens on regulatory risk. Meta's defiance of the EU highlights the severe financial penalties for non-compliance. The path forward is clear: prioritize firms that either avoid antitrust red flags or proactively adapt to new rules [3].

References:
[1] https://www.silicon.co.uk/e-marketing/socialmedia/meta-eu-fines-621451
[2] https://stocktwits.com/news-articles/markets/equity/meta-reportedly-stands-firm-on-eu-ad-model/ch8cirOR5Zw
[3] https://www.ainvest.com/news/meta-eu-fines-signal-era-regulatory-risk-big-tech-2507/