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EU Turns Nastier for U.S. Tech & Media Giants

Zacks Equity Research

European Union’s (EU) anti-trust regulatory activities have been dealing a severe blow to U.S. technology companies. The flurry of investigations related to data privacy, anti-competition practices and tax avoidance have been taking a toll on these companies since quite some time now.

GDPR Implementation: A Headwind

Notably, Alphabet’s GOOGL Google and Facebook FB are hurt by the implementation of General Data Protection Regulation (GDPR) in the EU.

Google was fined $57 million by French data protection authority under GDPR for not being able to disclose massive user data collection across its search platform, Google Maps and YouTube.

Meanwhile, the social media giant is allegedly storing millions of user passwords across its core Facebook app, Facebook Lite and Instagram platforms in an unencrypted format. Europe’s default privacy regulator is carrying out the investigation following which the company might face a fine of $2.2 billion.

Further, streaming giant, Netflix NFLX, which carries a Zacks Rank #3 (Hold), has been charged for engaging in "structural violation" of the EU data protection legislation under GDPR. Amazon AMZN is also in the fray.

Additionally, the Dutch Data Protection Agency suspects that Microsoft MSFT is involved in a potential breach of privacy rules by collecting data from users of Windows Home and Windows Pro.

Notably, Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Digital Tax Imposition, Anti-Competition Measures

The French Senate recently approved a digital tax of 3% that will be imposed on companies that generate worldwide revenues of at least $845 million and $28 million within France. The tax imposition will likely hurt Amazon, Facebook and Google, who have for long been escaping such taxes.

Moreover, EU’s Competition Commission has started an antitrust investigation to check whether the e-commerce giant uses sales data to gain competitive advantage over smaller sellers on the marketplace platform.

Also, Spotify SPOT has filed an antitrust complaint against Apple’s AAPL use of its influence over application developer partners to gain a competitive edge. European Commission has agreed to investigate the matter against the Zacks Rank #3 company.

Moreover, Google’s job search tool is also being scrutinized by EU regulators for its anti-competitive behavior.

Notably, the European Parliament has also implemented rules for audiovisual media. The move aims at supporting “the cultural diversity of the European audiovisual sector.” Apart from the 30% quota, the new rules demand video-on-demand service providers to finance Europe-made movies and television production. This can be done through direct investments or national funds.

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Tech & Media’s EU Presence in Jeopardy

EU offers immense opportunities to these companies in terms of enormous tech talent and expanding e-commerce, cloud and advertisement market size. Also, respect for intellectual property rights in this region remains a major positive for U.S. tech and media companies.

The antitrust regulations are expected to hurt top-line growth of these companies.  Facebook, Apple and Google generate significant revenues from this region on the back of digital nature of their services, dominance in their respective fields and algorithmic manipulations.

Initiatives to Minimize Risks in EU

As EU is working on making its privacy regulations more stringent, Google is gearing up to double its privacy engineers’ strength in Germany. It is aiming to take the number of such engineers to 200 in Munich by the end of this year who will work with its global network of privacy specialists.
    
Further, in an attempt to comply with GDPR, this Zacks Rank #2 company has updated its processing terms and offers European Model Contract Clauses to meet EU data-transfer requirements.

Additionally, Facebook, which carries a Zacks Rank #3, has taken privacy education initiatives for businesses and developers to abide by GDPR guidelines.

Further, Zacks Ranked #3 Amazon is making strong efforts to support businesses of all sizes.

Notably, Netflix is also establishing a dedicated production hub at the Shepperton Studios in Surrey, near London. The company opened its first international production hub to develop Spanish language content in Madrid last year. The company also opened office in Paris, its third in Europe after Amsterdam and London.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
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Spotify Technology SA (SPOT) : Free Stock Analysis Report
 
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