GOOGLE DOWNGRADED

Jay YarowBank of America Merrill Lynch analyst Justin Post is downgrading Google to “neutral.”
His reasons:

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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