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.

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Facebook VP of Global Marketing Solutions Carolyn Everson onstage at the Fortune Most Powerful Women Summit in October 2017.

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.

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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.

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.