GOOGLE DOWNGRADED
Dec 5, 2014, 18:30 IST
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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 $73.72bn/$33.81 from $74.44/$34.15 (which is below Street at $73.40bn/$$35.77) and lowering our price objective to $580 (from $600) based on 17x our lower 2016 EPS of $33.81. 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.