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TheStreet Open House

Have We Hit Peak Google?

NEW YORK (TheStreet) -- Google has gotten so big and it is facing so many wars on so many fronts that it may be time for shareholders to ask, have we reached Peak Google?

TheStreet's Chris Ciaccia insists we have not, and analysts he's talked to have a price target of $1,300 on the stock, which closed Friday at $1,120.

But every growth stock eventually rolls over, and its shareholders are not given an alert about it. Once the ceiling is hit, the stock may come back, but it is never treated the same way by the market.

Apple (AAPL) hasn't been the same since it hit that a ceiling at $700 and fell back to $400; it now trades in a range near the midpoint between the two. Amazon  (AMZN) seems to be going through the same thing: It peaked at over $400 earlier this year and now trades at under $340.

Google's rise has seen little interruption over the last five years. There was a fall of nearly $100 in the fall of 2012 and a decline of $70 early in 2010. In retrospect, both drops presented buying opportunities. The stock's latest hiccup has taken it from a high of over $1,200 in early February to its present level.

Is this another buying opportunity or is this Peak Google?

Google's revenue has a seasonal pattern, less marked than that of Amazon, but still pronounced. Revenue for Google peaks late in the year in the fourth quarter and hits a trough about now. Revenue for the fourth quarter was $16.86 billion, compared with $14.42 billion a year earlier, a gain of 16%.

To have the same 16% revenue gain for the first quarter, Google will need to bring in over $16 billion in revenue. Analysts are estimating $15.5 billion. The numbers will be released April 16.

As the numbers become bigger, it gets harder to grow by the same percentage as before. Growth naturally slows. Even Google's fans know that the company's growth, in percentage terms, is slowly decreasing. The law of large numbers is as inevitable as the aging process.

This basic law of numbers makes it increasingly hard to justify Google as a growth stock, as its size grows. Its price-to-earnings ratio of over 31 is based on its ability to keep increasing earnings in line with revenue.

But Google is increasingly going into areas such as local fiber networks that require a lot of capital but don't bring a huge return. In everything but search, where it's dominant, it faces increasing competition.

And its size merits it increasing government scrutiny and resentment, not just in the U.S. but everywhere. It's no accident that Baidu (BIDU) leads in China's search market and Yandex (YNDX) leads in Russia. It's government policy.

So, again, have we hit Peak Google?

At the time of publication the author owned shares of Amazon, Apple and Google.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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