The hits keep coming for Meta Platforms (META 2.48%).

Just as it's getting over the data-sharing restrictions imposed by Apple's (AAPL -0.60%) App Tracking Transparency update last autumn, European regulators are curbing how Meta can use its own users' data. The board of regulators says Meta cannot require users to agree to personalized advertisements based on their browsing and usage history within its own apps.

While Meta will appeal the ruling, it poses a major threat to one of its biggest competitive advantages.

European woes continue

Europe is already a challenging market for Meta Platforms.

Facebook monthly users have declined from 427 million Europeans at the end of 2021 to just 408 million at the end of the third quarter. 

Meanwhile, its average revenue per European user was down 14% year over year in the third quarter, more than any other region it reports. Foreign-exchange headwinds played a role in that drop, but its telling that other foreign regions are showing improvements in average revenue per use (ARPU).

Europe also has a relatively high level of iPhone users versus other international markets. As a result, it's seeing an outsized impact of Apple's App Tracking Transparency update in the region. The update requires users to opt into features that want to track their behavior across apps. For example, if you click on an advertisement in Instagram that takes you to a webpage in Safari, Meta will only be able to see if you bought anything if you've opted in.

The new ruling from the EU regulatory board goes a couple steps further. First of all, it applies across all devices, not just Apple devices. Second, it would limit Facebook's ability to target ads based on user data from within its own apps. That will result in less targeted ads, reducing its ability to charge a premium for ad placements in users' feeds, Stories, and Reels.

Meta isn't the only one facing the challenge

Meta isn't the only social media company facing the impact of tougher privacy regulations.

Every app that applies user data to targeted ads will find themselves limited by this ruling if it's upheld. That may actually put Meta at a bigger competitive advantage in the long run.

Ad budgets will flock to the most effective platform available. Increased privacy regulations and policies produce setbacks in the effectiveness of advertising on Facebook and other social media platforms. But a setback isn't a death blow.

Meta is one of the few companies with enough resources to invest in the capabilities to work around new privacy efforts from Apple or regulators. It's working on artificial intelligence in order to make its ads as effective as possible. And while that's costing it an arm and leg in capital expenditures, it will eventually result in an advantage over competitors who are unable to invest as much in the necessary technology to create a better ad system within the limitations of new data privacy policies.

While the EU regulators' ruling will impact Meta's revenue in the near term if it's upheld, the company is best suited to work around the increased focus among policymakers and consumers on data privacy. That trend is only going to continue, and it could impact operations in other regions beyond Europe. But as Meta develops solutions to work around data controls, it puts itself in a strong position to overcome any future changes related to the issue.