Morgan Stanley cuts Google on margin worries

Fri Jul 8, 2011 10:13am EDT

Google Inc's logo is seen at an office in Seoul in this May 3, 2011 file photograph. REUTERS/Truth Leem/Files

Google Inc's logo is seen at an office in Seoul in this May 3, 2011 file photograph.

Credit: Reuters/Truth Leem/Files

Related Topics

(Reuters) - Morgan Stanley downgraded Google Inc (GOOG.O) a notch to "equal-weight," saying the search giant's margins will shrink as it undertakes aggressive hiring and ramps up advertising for new products.

"Given Google's aggressive hiring plans, rising compensation expense, and significant advertising spend on Chrome and other Google products, we expect EBITDA margin to decline in 2011 and 2012," Morgan Stanley analyst Scott Devitt said in a note.

Devitt also raised doubts over the ability of the company's newer businesses, such as DoubleClick, Android Market and YouTube, to add to its revenues.

"We see lots of promise from Google's display/mobile/apps businesses, but we believe the consensus incorrectly attributes upside to those businesses and therefore may be overestimating their contribution in future periods," said the analyst, who slashed his target price on the company's stock to $600 from $645.

Shares of the company were down 2.5 percent at $533.12 in morning trading on Nasdaq. They earlier touched a low of $531.24.

(Reporting by Himank Sharma in Bangalore; Editing by Viraj Nair)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (1)
EN3 wrote:
This is great morgan stanley a company that was part of the 800 billion dollar stimulus package, just down grated a company for hiring people. Can you save the ultra rich mega corporations don’t want this economy turning around. Why it keeps those rabble rousing insignificant indentured servant middle class in check.
President Obama wouldn’t this count as one of your so called, “Tec” jobs thank you trying to put over on the american people saying you’re actually doing something. You should be on the television condemning what morgan stanley just did.
Bottom line keep economy down keep the middle class barely alive and we can take them for everything they got. And the politicians are right next to them cheering them on…

Jul 08, 2011 10:46am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.