Analyst: Google A Long Term Secular Winner, But Don't Get Overly Excited

Benjamin Swinburne of Morgan Stanley initiated coverage of

on Monday with an Equal-weight rating and $600 price target. “Google fends off a ‘law of large numbers' issues in core search by ramping investment spend,” Swinburne wrote in his initiation note. “Google is a long-term secular winner, but estimates appear high and diversification is proving expensive.” Google's third quarter results proved to show investors that Google is undergoing a slowing search growth in mature markets, including the U.S. and U.K. Swinburne cautions that despite slowing search growth, revenue estimates appear to be “aggressive” in 2015. In addition, the analyst also states that mobile search growth is not sustaining overall search growth rates. According to Swinburne, capital spending, R&D and stock comp have doubled from $11 billion in 2012, representing 29 percent of net revenue to $22 billion in 2014, representing 42 percent of net revenue. The analyst notes that these investments “should bear fruit over time” but the company's returns from new ventures “are unlikely to reach the level of its core search business suggesting margins could be under pressure for some time.” Bottom line, Swinburne is a “believer” in Google's long-term prospect but advises investors to “look for a better entry point.”