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Q2 2010
Quarterly Earnings
Summary
Second Quarter 2010 Highlights
• Revenue growth of 24% Y/Y and 1% Q/Q
– Google properties revenue i
G l ti d d
increased 23% Y/Y and 1% Q/Q
– Network revenues increased 23% Y/Y and decreased 1% Q/Q
– International revenues were $3.5 billion
• Operational Highlights
– Strong financial metrics: revenue growth, profitability and cash flow
– Continuing to invest in our largest growth opportunities with the highest long-term ROI:
• Search Monetization
• Display
• Mobile
• Enterprise
2
Quarterly Revenues
Q2’10 Y/Y Growth = 24%
Q2’10 Q/Q Growth = 1% 6,820
6,674 6,775
$7,000
$6,500
5,945
5,541 5,701 5,509 5,523
$6,000
2,036 2,063
2,044
$5,500 5,186 5,367
$5,000 1,801
1,693
($ in millions)
1,680 1,638 1,684
$4,500 1,655
1,686
$4,000
$3 500
$3,500
$
$3,000
$2,500 4,421 4,439 4,499
3,811 3,653 3,956
$2,000 ,
3,530 3,672 3,693
3,400
3 400
$1,500
$1,000
$500
100 182 189 197 178 186 188 209 300 258
$0
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10
3 Other Google.com Network
U.S. vs.
U S vs International Revenues
($ in millions)
5,186 5,367 5,541 5,701 5,509 5,523 5,945 6,674 6,775 6,820
100%
90%
80%
51% 52% 51% 50% 52% 53% 53% 53% 53% 52%
70%
60%
50%
40%
30%
49% 48% 49% 50% 48% 47% 47% 47% 47% 48%
20%
10%
0%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10
US International
4
Traffic Acquisition Costs
$1,800 40%
$ ,
$1,700
$1,600
$1,500 35%
$1,400
$1,300
29.2%
29 2%
$1,200 28.4% 27.9% 30%
$1,100 26.9% 26.9% 27.2% 27.1% 26.6% 26.4% 26.4%
($ in millions)
$1,000
$900 25%
1,721 1,711 1,732
$800 1 559
1,559
1,486 1,474 1,495 1,483 1,436 1,453
$700
$600 20%
$500
$
$400
$300 15%
$200
$100
$0 10%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10
TAC TAC as % of Advertising Revenues
5
Costs and Expenses
GAAP
( )
($ in millions) Q2'09 Q1'10 Q2'10
Cost of Revenues $2,108 $2,452 $2,467
Percent of revenues 38% 36% 36%
Research & Development $708 $818 $898
Percent of revenues 13% 12% 13%
Sales & Marketing $469 $607 $629
Percent of revenues 8% 9% 9%
General & Administrative $364 $410 $461
Percent of revenues 7% 6% 7%
Total Costs & Expenses $3,649 $4,287 $4,455
Percent of revenues 66% 63% 65%
Non-GAAP
($ in millions) Q2'09 Q1'10 Q2'10
Cost of Revenues $2,094 $2,446 $2,459
Percent of revenues 38% 36% 36%
Research & Development $526 $627 $696
Percent of revenues 10% 9% 10%
Sales & Marketing $412 $553 $573
Percent of revenues 7% 8% 8%
General & Administrative $324 $370 $418
Percent of revenues 6% 6% 7%
Total Costs & Expenses $3,356 $3,996 $4,146
Percent of revenues 61% 59% 61%
Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and
expenses to GAAP costs and expenses
6
Profitability
GAAP
($ in millions except per share amounts) Q2'09 Q1'10 Q2'10
Income from Operations $ 1,874 $ 2,488 $ 2,365
Operating Margin 34% 37% 35%
Net Income $ 1,485 $ 1,955 $ 1,840
EPS (diluted) $ 4.66 $ 6.06 $ 5.71
Non-GAAP
i illi t
($ in millions except per share amounts)
h t ) Q2'09 Q1'10 Q2'10
Income from Operations $ 2,167 $ 2,779 $ 2,674
Operating Margin 39% 41% 39%
Net Income $ 1,708 $ 2,181 $ 2,079
EPS (diluted) $ 5.36 $ 6.76 $ 6.45
pp g p
Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations
measures to the nearest comparable GAAP measures
7
Free Cash Flow
($ in millions) Q2'09 Q1'10 Q2'10
Net cash provided by
operating activities $1,609 $2,584 $2,085
Less purchases of property
and equipment
q p ($139)
($ ) ($239)
($ ) ($ )
($476)
Free cash flow (Non-GAAP) $1,470 $2,345 $1,609
8
Overview of Q2 2010 OI&E and FX
In Interest Income and Other (Expense), Net, we recognized net income of
$69M for Q2
• In Q2, we recognized $136M of interest income earned on our investments and $43M in
realized gains.
• In Q2, a greater portion of our option portfolio was in the money as foreign exchange rates
moved farther away from the option strike prices in Q2. As a result, we expensed $100M
related to our FX cash flow hedging program.
• Excluding gains related to our FX cash flow hedging program, had foreign exchange rates
remained constant from Q1 2010 through Q2 2010, our revenue in Q2 would have been
$176M higher. Excluding gains related to our FX cash flow hedging program, had foreign
exchange rates remained constant from Q2 2009 through Q2 2010, our revenue in Q2 2010
ld have b
would h been $24M l lower.
• In addition, our FX cash flow hedging program allowed us to recognize a benefit of
approximately $79M to international revenue this quarter.
9
Revenues by Geography
($ in millions) Q2'09 Q1'10 Q2'10
U it d States
United St t $2,609 $3,196 $3,288
United Kingdom $715 $842 $770
Rest of the World $2,199 $2,737 $2,762
Total Revenues $5,523 $6,775 $6,820
10
International Revenues Excluding Hedging and FX Impact (Y/Y)
($ in millions) Q2'09 Q2'10 ($ in millions) Q1'09 Q1'10
UK revenues (GAAP)
( ) $715 $770 ( )
UK revenues (GAAP) $733 $842
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q2'09 rates a) f/x impact on Q1'10 revenues using Q1'09 rates
(gains)/losses n/a 5 (gains)/losses n/a (72)
b) hedging gains (67) (19) b) hedging gains (82) (10)
UK revenues excluding f/x and hedging impact (Non- UK revenues excluding f/x and hedging impact (Non-
GAAP) $648 $756 GAAP) $651 $760
Y/Y % (Non-GAAP) 17% Y/Y % (Non-GAAP) 17%
($ in millions) Q2'09 Q2'10 ($ in millions) Q1'09 Q1'10
ROW revenues (GAAP) $2,199 $2,762 ROW revenues (GAAP) $2,149 $2,737
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q2'09 rates a) f/x impact on Q1'10 revenues using Q1'09 rates
(gains)/losses n/a (29) (gains)/losses n/a (170)
b) hedging gains (57) (60) b) hedging gains (72) -
ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,142 $2,673 (Non-GAAP) $2,077 $2,567
Y/Y % (Non-GAAP) 25% Y/Y % (Non-GAAP) 24%
11
International Revenues Excluding Hedging and FX Impact (Q/Q)
($ in millions) Q1'10 Q2'10 ($ in millions) Q4'09 Q1'10
UK Revenues (GAAP) $842 $770 UK Revenues (GAAP) $772 $842
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q1'10 rates a) f/x impact on Q1'10 revenues using Q4'09 rates
(gains)/losses n/a 47 (gains)/losses n/a 20
b) hedging gains (10) (19) b) hedging gains (8) (10)
UK revenues excluding f/x and hedging impact (Non- UK revenues excluding f/x and hedging impact (Non-
GAAP) $832 $798 GAAP) $764 $852
Q/Q % (Non-GAAP) -4% Q/Q % (Non-GAAP) 12%
($ in millions) Q1'10 Q2'10 ($ in millions) Q4'09 Q1'10
ROW Revenues (GAAP) $2,737 $2,762 ROW Revenues (GAAP) $2,747 $2,737
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q1'10 rates a) f/x impact on Q1'10 revenues using Q4'09 rates
(gains)/losses n/a 129 (gains)/losses n/a 92
b) hedging gains - (60) b) hedging gains - -
ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
(
(Non-GAAP) ) $2,737 $2,831 (Non-GAAP)
( ) $2,747 $2,829
Q/Q % (Non-GAAP) 3% Q/Q % (Non-GAAP) 3%
12
Table 1 - Reconciliations of non-GAAP costs and expenses
to GAAP costs and expenses
As a % of As a % of As a % of
($ in millions) Q2'09 Revenues (1) Q1'10 Revenues (1) Q2'10 Revenues (1)
Cost of revenues (GAAP) $ 2 108
2,108 38% $ 2 452
2,452 36% $ 2 467
2,467 36%
Less: Stock-based compensation expense (14) (6) (8)
Cost of revenues (non-GAAP) $ 2,094 38% $ 2,446 36% $ 2,459 36%
Research and development (GAAP) $ 708 13% $ 818 12% $ 898 13%
Less: Stock-based compensation expense (182) (191) (202)
(non-GAAP)
Research and development (non GAAP) $ 526 10% $ 627 9% $ 696 10%
Sales and marketing (GAAP) $ 469 8% $ 607 9% $ 629 9%
Less: Stock-based compensation expense (57) (54) (56)
Sales and marketing (non-GAAP) $ 412 7% $ 553 8% $ 573 8%
General and administrative (GAAP) $ 364 7% $ 410 6% $ 461 7%
Less: Stock-based compensation expense (40) (40) (43)
General and administrative (non-GAAP) $ 324 6% $ 370 6% $ 418 7%
Total costs and expenses (GAAP) $ 3,649 66% $ 4,287 63% $ 4,455 65%
Less: Stock-based compensation expense (293) (291) (309)
Total t d ( GAAP)
T t l costs and expenses (non-GAAP) $ 3,356
3 356 61% $ 3,996
3 996 59% $ 4 146
4,146 61%
(1) Percentages based on revenues of $5,523 million in Q2'09, $6,775 million in Q1'10 and $6,820 million in Q2'10.
13
Table 2 - Reconciliations of non-GAAP results of operations
measures to the nearest comparable GAAP measures
Operating Operating Operating
($ in millions except per share amounts) Q2'09 Margin (1) Q1'10 Margin (1) Q2'10 Margin (1)
Income from operations (GAAP) $ 1,874 34% $ 2,488 37% $ 2,365 35%
Add S k b d i
Add: Stock-based compensation expense 293 291 309
Income from operations (non-GAAP) $ 2,167 39% $ 2,779 41% $ 2,674 39%
Net income (GAAP) $ 1,485 $ 1,955 $ 1,840
Add: Stock-based compensation expense (net of tax) 223 226 239
(non-GAAP)
Net income (non GAAP) $ 1,708 $ 2,181 $ 2,079
Net income per share - diluted (GAAP) $ 4.66 $ 6.06 $ 5.71
Net income per share - diluted (non-GAAP) $ 5.36 $ 6.76 $ 6.45
Shares used in per share calculation - diluted 319 323 322
$5,523 Q2'09 $6,775 Q1'10 $6,820 Q2'10
(1) Percentages based on revenues of $5 523 million in Q2 09, $6 775 million in Q1 10 and $6 820 million in Q2 10.
14
Q2 2010
Quarterly Earnings
Summary
