UPDATE: Bank Of America Downgrades Google, Cuts Price Target

Bank of America downgraded Google Inc GOOG/GOOGL Friday from Buy to Neutral and cut its price target from $600 to $580.

Analysts Justin Post and Joyce Tran cited four points for the downgrade, here are highlights:

1. "Lower than Street estimates: We are below Street in 2015 and are slightly lowering 2016 EPS, the key valuation metric, to $33.81, which is below Street at $35.77...there has been no new big ad product launch this year to offset slower search revenue growth (estimated at 8-9 percent in US). Also, with Google targeting cloud computing, local retail delivery, video, and the Internet of Things (IoT), we expect elevated capex (up 50 percent y/y LTM) and hiring (up 22 percent y/y in 3Q) to drive continued margin pressure, more than is baked into street estimates."

2. "Increased regulatory risk: While it may just be negotiating posturing, the EU appears to be making a bigger attempt to try to regulate Google’s search results, and the outcome of this process is uncertain."

3. "Apple product cycle and search contract renewal uncertainty: Apple is having a strong phone product cycle, which could benefit search activity, but is a potential headwind to Android. Also, according to press reports, Apple and Google’s search agreement may expire in 1H’15, and we see risk that Apple switches default search providers given Android phone competition."

4. "Social competition, Google’s US market share may have peaked: Competition is increasing with Facebook investing in better search capabilities for its 20 percent Internet time usage share, and its Atlas ad serving platform."

The price target was based on 17x the 2016 lowered EPS of $33.81 (15x ex-cash). The firm’s revenues were roughly in-line with the Street, but lower EPS, likely due to lower margin expectations.

Google traded at $529.71 in the pre-market, down 1.41 percent.