Google has reported another outstanding quarter driven exclusively by enormous growth in online advertising. For the quarter, the company earned $3.91 a share on a pro forma basis, excluding certain costs -- beating Wall Street's $3.78-a-share estimate. Net revenue, excluding the fees Google pays search-ad partners, was $3.01 billion, breezing past the $2.94 billion. The numbers and the dramatic growth - it all looks bulletproof and all the analysts (including some who have written on the site) have made the argument that Google is cheap relative to its expected growth.

The expected growth is by no means certain. For all of Google's grumblings about entering new markets, it has yet to generate revenue from anything other than paid search. It will take many, many years before any of Google's new efforts produces a meaningful effect on the bottom line, no matter whom they purchase and no matter how many people they hire for these efforts. Plus, it is still uncertain which way Google is going with many of these efforts - i.e., most are still in their infancy at best.

Google's paid search revenue can easily level off. First, their ability to generate revenue from paid search is largely (although not entirely) tied to their remaining far and away the best search engine available. With IACI and Ask.com to everyone who has a garage in Palo Alto trying to debunk them of this position, it isn't too unreasonable to assume that someone will create a better search engine and get whatever money is necessary to publicize it. I sense that Google's engine is already failing. Just try to Google your own name - whereas the results previously related to only your substantive accomplishments, you will now find that they have been infiltrated by companies that you have never heard of trying to sell your credit information, your contact information, etc. to others.

Second, advertisers could easily reduce their online advertising expenditures or simply become more judicious and deliberate in how they spend online. Google AdSense is a bidding model where advertisers have been throwing money at keywords left-and-right for the last year. Some of the money that is being paid by advertisers to get certain keywords was bordering on ridiculous about 2 or 3 months ago. In fact, these bids seem to have already come down. Just ask anyone who publishes a website and does business with Google and they will tell you that they are making less (or a per click or CPM basis). Now, they could be making less because Google has unilaterally decided to lower their payments and increase their own margins, but I would tend to believe that Google is running something of an honest operation and that they are reducing these payments to publishers because their receipts from advertisers have come down.

One way that Google can easily prop up its online advertising business is to get into pornography, but outside of Orkut.com in Brazil, they are showing little initiative in this area.

So, I think that Google is very, very vulnerable to a big fall.

Before anyone asks me about Yahoo!, let me just say that I agree that it is even more overvalued relative to its growth prospects. Their search business has already fallen apart and, barring a recovery, that stock ultimately will go much, much lower.