The European market has always been considered a difficult one for American companies. A high level of regulation, pro-consumer laws, data protection laws, and powerful watchdog organizations all mean that Europe can be a learning curve for American businesses.
Even for the largest and most experienced companies, legal problems can occur.
This has been made clear yet again this week, as the UK government prepares to fine Facebook (NASDAQ: FB) on privacy concerns, while the EU will likely hit Alphabet (NASDAQ: GOOG) with a record multi-billion dollar fine over antitrust concerns.
Facebook to Pay the Price for Cambridge Analytica Scandal
Earlier in 2018, Facebook was rocked both internally and on the stock market by what is now known as the Facebook-Cambridge Analytica Data Scandal.
In case you missed the stories, the scandal centered on the unauthorized collection of personal data from more than 87 million Facebook users, which was then used to influence voter opinion in the United Kingdom, United States, and Mexico. With data obtained without authorization from Facebook, Cambridge Analytica sold personal information to politicians and their campaign teams.
Although Facebook was not complicit in the data misuse, they did fail to act when they learned of the breach, and the scandal resulted in a huge public backlash and share price drop.
Facebook stock recovered in the second quarter but then dropped -0.98% at the close of yesterday’s trading, after it was announced that the company would face a potential fine of $660,000 in the United Kingdom for failing to protect user data.
While the fine is not financially significant for a company the size of Facebook, the news has reminded investors of the recent scandal while also reinforcing the fact that American businesses are vulnerable to stricter privacy and data laws in Europe.
Google Faces a Much Larger Fine in the EU
Alphabet, parent company of Google, will also face a fine in the European Union, which analysts believe will exceed $2.82 billion. The fine is to punish Google for abusing the position of Android as the dominant smartphone platform. The EU has found that Google used their software and contracts with OEMs to stifle competition.
The details of the fine are likely to be revealed after Wednesday next week, and there is potential for a stock price decline once the official announcement is made.
Foreign Markets are as Important as Our Own
The European Union is the world’s largest economy if all member nations are considered and GDP is adjusted for purchasing power parity. Legal proceedings, political climate, and regulations can have an impact on American stocks.
Recent news illustrates just how important it is to follow the global stories, even when investing in American companies listed on Wall Street stock exchanges.
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