GDPR could wipe 2% from Google’s revenues, according to Deutsche Bank (GOOG)

• Google gets 33% of its revenues from Europe, according to Deutsche Bank.
• The European Union’s new privacy and data protection act (GDPR) comes into force in May.
• If 30% of European users opt out of data sharing, the revenue impact would be 2 percentage points, DB says.

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The European Union’s new General Data Protection Regulation (GDPR) could wipe 2 percentage points from the revenues of Alphabet, Google’s corporate parent, according to Deutsche Bank analyst Lloyd Walmsley and his team.

GDPR comes into effect on May 25, 2018, and requires any company that does business in the EU to protect the privacy of consumers’ data, restrict what kinds of data companies can collect, and make data collection law across the continent simpler.

The Deutsche Bank team regard the regulatory climate as somewhat threatening to Google, given recent negative rulings from the European Commission around Google’s alleged monopoly status in terms of online shopping, search and the bundling of Google apps on Android phones.

When GDPR comes into effect, companies will be required to treat consumers with a high level of privacy by default, and get consent for further data transfers. Deutsche Bank estimates that about 33% of Google’s revenues (or $9.3 billion / £6.6 billion) come from Europe, and within that population, 30% of users might opt out of data sharing. That would hurt Google’s ability to deliver ads, they wrote in a note to clients, under a chapter titled “Where we see risk in 2018”:

“We see elevated regulatory risk this year heading into EC rulings, which could require more onerous changes to Google’s business (vs the relatively mild comparison shopping changes), particularly around Android. We are seeing renewed calls for antitrust investigations around mega cap tech that could become mid-term election issues later this year. In addition, given the rollout of GDPR in Europe and ePrivacy regulations later, we see scope for changes that could affect ad efficacy and/or lead to ad buyer hesitation around certain retargeting practices that impact Google’s rapidly growing programmatic business as well as integration of certain types of data signals into core search. Given EMEA represents about 33% of revenue, a hypothetical back-of-the envelope 30% EU user opt-out of some data sharing, impacting ad efficacy by 20%, could equate to a 2ppt impact to ad revenue.”

Nonetheless, Deutsche Bank rates Alphabet (GOOG) as a “buy.” The company reports earnings on Feb. 1. The stock was at $1,163.69 at the time of writing, having risen from $796 a year earlier. Google reported $28 billion in revenues for Q3 2017.

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