Morgan Stanley cuts Google on margin worries

Morgan Stanley cuts Google on margin worries

Stock Market Predictions

(Global Markets) - 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)

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Brazil's Vale falls after Q2 results miss estimates

Brazil's Vale falls after Q2 results miss estimates

Stock Market Predictions

SAO PAULO (Global Markets) - Shares of Vale, the world's second largest mining company by market value, fell on Friday after second-quarter profit fell short of expectations.

Despite reporting a hefty 74 percent surge in second-quarter net income to $6.45 billion from a year earlier, investors cited rising wage and operating costs resulting from a drop in the U.S. dollar as a concern for the coming quarters. Vale was expected to earn $7.45 billion in the quarter, according to a Global Markets poll of five analysts.

Reflecting a trend throughout the industry, Vale said the cost of goods sold jumped 39 percent to $5.72 billion from the previous quarter, driven by acquisition of raw materials, higher wages and pricier services such as cargo freight and maintenance.

The strengthening of the Brazilian currency, which traded around 10 percent stronger in the second quarter of this year compared with 2010, was also a key factor in rising costs.

"We believe there is room for further disappointment in the quarters ahead, although cost inflation seems to be moderating," Edmo Chagas, a senior mining analyst with BTG Pactual in Rio de Janeiro, wrote in a note to clients.

Nonvoting shares (VALE5.SA) of Rio de Janeiro-based Vale, Brazil's biggest private sector company, shed 1.6 percent to 45.46 reais, the fourth decline in five sessions. The stock, Vale's most widely traded class of shares, is down 3 percent this year.

Voting shares (VALE3.SA) tumbled 2.3 percent, dragging down the benchmark Bovespa index .BVSP 1 percent on Friday.

Earnings before interest, debt, depreciation and amortization, a gauge of operational profits known as EBITDA, of $9.07 billion also missed analysts' estimates of $10.33 billion in the second quarter.

EBITDA fell short of those projections because of lower shipments, non-recurrent issues on ferrous and non-ferrous production, and higher operating expenses, according to Goldman Sachs Group analyst Marcelo Aguiar.

Limiting declines in the stock was the company's offering of a one-time dividend worth $3 billion, analysts said.

The company will likely end up distributing about $8 billion in dividends to shareholders this year, BB Investimentos analyst Victor Penna said in a report.

(Reporting by Guillermo Parra-Bernal, editing by Dave Zimmerman)

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