Europe privacy probes could ‘derail’ Facebook revenue growth

European probes into Facebook's privacy policies and the threat of more regulation could "derail" the social networking company's future revenue growth, a report claims.

Facebook's advertising relies heavily on collecting data about its users in order to present targeted ads. But this has raised the suspicions and concerns of many of the European Union's (EU) member states.

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Government privacy watchdogs from countries including Spain, Italy, France and Germany are investigating the way in which Facebook handles users' data. While no major fine or piece of regulation has been introduced, eMarketer said revenue growth could be under threat.

"This situation will play out over the coming months and years, and its impact on Facebook's ad business could be substantial if the company was forced to limit or curtail some of its targeted advertising activities," the digital research firm said in a note on Monday.

People silhouetted against Facebook logo
Dado Ruvic | Reuters

In Europe, Facebook's ad revenue grew 59.9 percent last year, to $3.13 billion from $1.95 billion in 2013. Europe accounts for around 25 percent of Facebook's total advertising revenue, the second biggest market after the U.S., highlighting the importance of the region for the social networking giant.

Concerns over Facebook's privacy has already seen it stopped from launching the Moments picture app in Europe. The app launched earlier this month and uses facial recognition technology to identify which friends are in a photo. It then lets you send photos to friends without posting them to the public. But the Irish data regulator said users must have an opt-in option which Facebook has not built yet.

Belgium's Privacy Protection Commission also took Facebook to court this month and accused the company of tracking the internet browsing habits of non-users as well as its own members, a claim the social media firm said had "no merit".

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eMarketer said the result of all these hurdles "makes it difficult to imagine Facebook increasing its revenue from Western Europe significantly."

Facebook was not immediately available for comment.

But analysts said that regulation could have an impact but a user backlash against Facebook as a result would hurt more.

"To me there will always been these occasional regulatory crackdowns but the big turning point when it would impact revenues would be to me when the consumer becomes more aware and concerned about how their data is being used," Jasper Lawler, analyst at CMC Markets, told CNBC by phone.