What happened
Shares of social networking star Meta Platforms (META -1.81%) tumbled 2.3% through 2:35 p.m. ET Friday afternoon on reports of troubles dogging its all-important advertising business, responsible for 97.5% of the revenue the company takes in, in a year.
So what
As tech news website The Information reports, Meta's success in ad-selling depends primarily on its ability to tailor ads to the "likes" and interests of its Facebook and Instagram users. But around the world, governments are clamping down on private corporations' use of such personally identifiable data. In the European Union, for example, citizens have been granted the right to tell companies they only want to see ads that consider their age, gender, and "general location" when choosing which of several possible ads to display to them.
Elsewhere, India and Brazil are named as two other countries considering enacting restrictions on use of personal data. Should these and other countries follow the tack the EU is taking, it could render much of the data that Meta regularly collects effectively unmonetizable, throwing the company's entire business model into question.
Now what
Perhaps in response to this threat, Reuters says Meta has already denied reports in the Financial Times this week, to the effect that the company is planning to introduce advertisements on its WhatsApp.
On the one hand, monetizing WhatsApp would be a logical move for Meta to make, seeing as currently WhatsApp is underperforming Meta's other businesses in the revenue department, generating only about 3% of the company's total annual take. It seems clear that Meta would like to grow that number if it can. And indeed, last year Mark Zuckerberg confirmed that monetizing WhasApp would lead the next wave of Meta's sales growth. On the other hand, introducing ads on WhatsApp could fly in the face of governmental sentiment aiming to restrict ads -- as well as potentially upset WhatsApp users.
Instead, it seems Meta has elected to upset its shareholders by denying it will put ads on WhatsApp. Shareholders may not like this, because it sounds like Meta is walling off an area that was supposed to be a key growth driver for its business, implying slower growth in the future.
But if the trend of governments cracking down on personal data use continues the way it's going, Meta may have little choice but to comply.
