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Morgan Stanley Lowers Google Stock Rating, Citing High Spending

Morgan Stanley’s move to downgrade Google's stock rating to equal weight from over weight has cost the Internet Search giant some losses on the stock market.

The Redmond, Washington-based company lost nearly 2.1 percent in trading on Friday, after an analyst at Morgan Stanley stated that Google might not receive such high returns the way it is continuously investing in new avenues, Market Watch reports.

"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," stated Scott Devitt, analyst at Morgan Stanley in a note.

Devitt went on to explain that Google Inc. is investing heavily in new market while returns and the benefits of those investments are not clear yet which will result in a low margin.

He says that Google is trying to build and market products such as its web browser, apps for Android Market and other platforms like You Tube, which may fetch in lower revenues in comparison to its flagship, the Search Engine. The latest investment includes its social networking platform Google+.

Google’s shares dropped by 2.1 per cent to end at $530.80 by the time markets closed for the day.