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Shares of Google Inc. fell more steeply than the broader market Friday after a group of Morgan Stanley analysts said the search engine company's growing investments in new products may not pay off.
THE SPARK: The analysts cut their investment rating to "Equal Weight" from "Overweight," suggesting that investors should hold Google stock in proportion to its share of a market, and they cut the price target on the stock to $600 from $645.
They said Google was spending heavily to build and market new products, but it was not clear how and when those efforts would benefit the bottom line. In the meantime, profit margins will shrink, they said.
THE BIG PICTURE: Google dominates in helping people search on the Internet. Two-thirds of U.S. searches are done through Google.com. It has been trying to develop other successful businesses over the past few years, branching into social networking and other fields. Some of those attempts fallen flat.
This month, the company launched Google+, designed to compete with social-networking giant Facebook. Google also recently began rolling out Google Offers, going after local couponing site Groupon.
THE ANALYSIS: The Morgan Stanley analysts say Google's products beyond Web search -- including, for example, video site YouTube, the mobile apps market Android Market and the Chrome browser -- might not be able to bring in as much revenue as investors hope.
Also, Google+ and Google Offers face tough competition from established rivals, Morgan Stanley said.
SHARE ACTION: Google shares dropped $16.22, or 2.9 percent, to $530.80 in midday trading. The Nasdaq, which includes many technology companies, was down 1.3 percent in a broad sell-off.
Google shares have traded from $447.65 to $642.96 in the past 52 weeks. They have fallen 11 percent so far this year.