Google Could Maintain High Market Share Despite EU Antitrust Deal

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Analysts at Bank of America Merrill Lynch (BAML) believe that a final settlement with EU antitrust regulators in connection with a complaint from Google Inc. (NASDAQ:GOOG) competitors that it is abusing its dominance in the European search market will have little impact on the search engine giant’s market position.

Google Could Maintain High Market Share Despite EU Antitrust Deal

BAML analysts Justin Post and Joyce Tran believe that Google Inc. (NASDAQ:GOOG) will be able to maintain its high market share because of its continued improvement in content and user experience. They maintained their buy rating and $875 price target for the shares of the search engine giant based on 17x 2014 EPS of $50 or 15x rex-interest EPS, plus $130/share in cash.

The analysts emphasized that Google Inc. (NASDAQ:GOOG) traded at 11-24x forward PE over the past five years, and they are confident that the company’s multiple could expand if its revenue growth re-accelerates on new ad products and easier y/y comparisons. According to them, the search engine giant has incremental opportunities in mobile advertising, display advertising, YouTube monetization, and mobile hardware.

Despite their strong confidence on the growth prospects of Google Inc. (NASDAQ:GOOG), Post and Tran identified several risks on their price objective for the company’s stock including the anticipated faster deceleration of PC revenue, as well as pressure of mobile transition on the company’s near-term revenue growth and its margin profile. They also cited the risks of revenue growth pressure from competitors’ initiatives, and saturation of key markets given its dominant market share. The stock might also be pressured by consumer cycles with exposures to economic verticals and regulatory overhang.

Going back to the final settlement with EU regulators, Post and Tran cited that available reports indicated that Google Inc. (NASDAQ:GOOG) offered the following concessions to resolve competitors’ concerns:

1.)    Google will clearly label its content for Local and News

2.)    Google will be obliged to display links to rival search engines for certain paid services

3.)    Rival’s slots will be allocated for auction for Shopping

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4.)    Google will allow its competitors to choose not to appear in its search results for reviews of restaurants and hotels. The company will also provide a software that enables its rivals to hide 10 percent of its webpage content from Google Inc. (NASDAQ:GOOG)

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