Investors may be willing to forgive and forget Facebook Inc.'s (FB) dramatic selloff a month ago, but European regulators certainly aren't.
Facebook shares rose 0.6% on Monday in pre-market trading to $174.64 per share, still down significantly from its July high of $218.62.
German anti-trust regulator made it clear on Monday that they are not looking the other way. Andreas Mundt, president of the Bundeskartellamt, a German anti-trust and competition authority, said they are investigating and bringing a case against Facebook.
This could spell more fines for Facebook, as the company is fielding increasing questions about its profitability momentum and user growth.
"We are currently conducting proceedings against Facebook, and sector inquiries on online advertising, comparison portals and smart TVs," Mundt said in an annual report presented in Bonn, Germany today. "The competition authorities in Europe are carrying out the groundwork for setting guidelines for the digital economy."
The European Commission is drafting further laws to regulate the data collection practices of the company, in hope of preventing any scandal to the scale of the recent Cambridge Analytica debacle in America, the Financial Times reported.
The report cites Czech EU commissioner Vĕra Jourová as demanding transparency in Facebook's advertising and its handling of data relating to political endeavors, similar to Cambridge Analytica.
If these regulations are implemented, Facebook could face an increasingly adverse environment in Europe and other markets.
On last month's earnings call, the social media giant blamed the General Data Protection Regulation (GDPR) in Europe for its slowing user growth in the region and for hindering its ability to target ads, its main source of revenue, on the continent.
CEO Mark Zuckerberg mentioned in the presentation on July 25 that European active users declined by about 1 million people in the second quarter, even as the implementation of the GDPR only began in late May, two thirds of the way through the quarter.
He and CFO David Wehner proposed that more impact might be felt moving forward as full quarters reflect the influence of the regulations on results. Their presupposition came before the announcement of potential further regulations that have come into focus this morning from both Mundt and Jourová.
Clearly, tightening restrictions could have a big financial impact in addition to a loss in user retention and growth.
For reference on potential impact of additional measures, Alphabet Inc (GOOG) recorded $5.07 billion Android anti-trust fine from EU commission fines in the year ended June 30 2018, nearly doubling its penalties from the year prior.
Not Slowing Down
Still, most of the regulatory pressure on Facebook has been limited to Europe so far.
In its home market, Facebook is boosting its lobbying efforts in Washington and looking to get ahead of privacy regulations, New York Times reported on Sunday. Facebook, along with other tech giants, has lobbied for a new "federal privacy law" that "would overrule the California law and instead put into place a kinder set of rules that would give the companies wide leeway over how personal digital information was handled," according to the report.
Menlo Park, California-based company is also looking to woo publishers and advertisers with new features.
As censorship and concerns over data and user protection come into focus in America as well, stemming from inquiries involving controversial commentator Alex Jones and countries like Iran exploiting Facebook's platform to influence Americans, Facebook will have to continue to tackle questions about its long-term profitability and user growth momentum.
Facebook is a holding in Jim Cramer's Action Alerts Plus member club.