Bank of America Merrill Lynch analyst Justin Post is downgrading Google to “neutral.”
- Lower than Street estimates (search maturity, lack of product catalysts, and margin pressure to investments in competitive and long-duration businesses like cloud computing and retail delivery)
- Increased regulatory risk, particularly in the EU
- Strong Apple product cycle and search contract renewal uncertainty
- Competition (FB in ad networks, possibly search) and reversal of US online advertising market share gains due to social emergence (we estimate Google’s US market share will fall from 41% in 2013 to 40% in 2014E and 39% in 2015E).
- We are slightly lowering our 2016 revenue/EPS to $US73.72bn/$US33.81 from $US74.44/$US34.15 (which is below Street at $US73.40bn/$US$US35.77) and lowering our price objective to $US580 (from $US600) based on 17x our lower 2016 EPS of $US33.81. Google is well positioned with search tech, Android, YouTube and cash, but with our 2016 estimate 5% below the Street, we cannot make a strong case for multiple expansion.
Google’s stock is down 1% in premarket trading. Google’s stock is down for the year.
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