The love for Google is starting to wane as its stock price is outgrowing its profit potential.  In the early days of $100 share prices it didn’t matter what Google was doing on the backend, its stock was going to soar as analysts piled on for reasons that might have seemed a bit frivolous.  Even today the stock is selling for a PE ratio of 32 that outpaces most tech stocks.  With a PEG ratio of .87 which is small but still high for a stock with so much risk to its earnings, Google might not have much room to grow in this web 2.0.

Consider all of its high class flops and large investments into sectors that seem a bit loose handed.  Its $1.5 Billion purchase of Youtube has led to little and its Google Apps eat more bandwidth than they do add to the bottom line.  Simply, Google cannot monetize the internet like it can search.  Strike that as problem one that threatens its business.

Next up you have the fact that internet advertising spending is slumping.  There are more websites than people and more advertising space can be created just by adding a page to a website.  Online advertising is a tough business to handle when more of it can be created just by adding pixels and code to a website.  Emarketer, a prominent research firm for online advertising has released revised numbers on expectations for online marketing.  The firm dropped its expectations on US online ad sales by $1 Billion to just under $25 Billion to rest at $24.9 Billion in 2008.  This also drops its growth rates to 17.5% from a figure of 22.2% in the US online advertising business.

What this means for Google and other online advertising sellers is that generating profits will have to come from the ability to sell rather than relying on good fortune.  Growth in the internet advertising sector automatically adds a base growth of 17.5% to advertising firms, thus additional growth has to come from either more customers or higher prices for its advertising.  Emarketer also stated that it expects online video revenue to come in at 66% less than originally expected to $505 Million from $1.4 Billion.  Sorry Youtube but you’ll have to work harder for your money.  The firm also expects little change in search engine advertising, which means that the organic growth of the online marketplace is essentially nil.  The fallout of the real estate market and less spending from automakers was cited as a reason for slowed advertising spending.  Real estate advertising is some of the most profitable advertising on the internet, especially on localized advertising sources.

Organic growth on the internet will not be around to prop up Google’s bottomline this time around.  Though it looks particularly cheap compared to others, the growth it has shown in the past will likely fall to levels equaled to that of tech stocks with tangible products such as Intel or Cisco.