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Google Earnings Q2 2011

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Google Earnings Q2 2011 Powered By Docstoc
					    Q2 2011
Quarterly Earnings
    Summary
    Second Quarter 2011 Highlights
    • Revenue growth of 32% Y/Y and 5% Q/Q
      –   Google properties revenue increased 39% Y/Y and 6% Q/Q
      –   Network revenues increased 20% Y/Y and 2% Q/Q
      –   International revenues were $4.9 billion


    • Operational Highlights
      –   Strong financial metrics: revenue growth, profitability, cash flow

      –   Continuing to invest in three major areas of focus:

          •    Core ads business: search quality and monetization

          •    Businesses demonstrating high consumer success: YouTube, Android, Chrome

          •    New businesses where we’re investing to drive adoption and innovation: Social,
               Commerce, Local




2
    Quarterly Revenues
                                  Q2’11 Y/Y Growth = 32%
                       $10,000    Q2’11 Q/Q Growth = 5%

                                                                                                                9,026
                        $9,000                                                                          8,575
                                                                                               8,440
                        $8,000
                                                                                                                2,484
                                                                                    7,286
                                                                                                        2,427
                                                           6,674 6,775 6,820
                                                                                                2,495
                        $7,000
     ($ in millions)




                                                  5,945                              2,199
                        $6,000            5,523
                                 5,509                             2,036    2,063
                                                           2,044

                        $5,000                     1,801
                                  1,638   1,684

                        $4,000
                                                                                                                6,232
                                                                                                5,672   5,879
                        $3,000
                                                                   4,439    4,499    4,833
                                                           4,421
                                                  3,956
                        $2,000    3,693   3,653


                        $1,000


                                  178      186     188      209     300      258         254     273     269     310
                           $0
                                 Q1'09    Q2'09   Q3'09    Q4'09   Q1'10    Q2'10    Q3'10      Q4'10   Q1'11   Q2'11

                                                                    Other   Google.com     Network
3
    U.S. vs. International Revenues
                                                ($ in millions)
               5,509   5,523 5,945     6,674 6,775 6,820          7,286 8,440      8,575   9,026
        100%


        90%


        80%

               52%     53%     53%     53%      53%      52%       52%     52%     53%     54%
        70%


        60%


        50%


        40%


        30%

               48%     47%     47%     47%      47%      48%       48%     48%     47%     46%
        20%


        10%


         0%
               Q1'09   Q2'09   Q3'09   Q4'09    Q1'10    Q2'10     Q3'10   Q4'10   Q1'11   Q2'11

4                                              US         International
    Traffic Acquisition Costs

                       $2,200                                                                                          40%
                       $2,100
                       $2,000
                       $1,900
                       $1,800                                                                                          35%
                       $1,700
                       $1,600
                       $1,500                                                                                          30%
                       $1,400
     ($ in millions)




                                26.9%   27.2%   27.1%
                       $1,300                           26.6%   26.4%   26.4%
                                                                                  25.7%
                       $1,200                                                               25.3%
                                                                                                       24.5%   24.2%
                       $1,100                                                                                          25%
                       $1,000
                         $900                                                     1,805     2,069              2,110
                                                        1,721   1,711   1,732
                         $800                                                                          2,038
                                                1,559
                         $700   1,436   1,453                                                                          20%
                         $600
                         $500
                         $400                                                                                          15%
                         $300
                         $200
                         $100
                           $0                                                                                          10%
                                Q1'09   Q2'09   Q3'09   Q4'09   Q1'10   Q2'10     Q3'10     Q4'10      Q1'11   Q2'11

                                                        TAC         TAC as % of Advertising Revenues
5
    Costs and Expenses
     GAAP
     ($ in millions)                                                                            Q2'10          Q1'11          Q2'11
     Cost of Revenues                                                                               $2,467         $2,936         $3,172
       Percent of revenues                                                                              36%            34%            35%

     Research & Development                                                                             $898       $1,226         $1,234
       Percent of revenues                                                                              13%            14%            14%

     Sales & Marketing                                                                                  $629       $1,026         $1,091
       Percent of revenues                                                                               9%            12%            12%

     General & Administrative                                                                           $461           $591           $648
       Percent of revenues                                                                               7%             7%             7%



     Charge Related to Potential Resolution of Department of Justice Investigation                       $0            $500            $0
       Percent of revenues                                                                               0%             6%             0%

     Total Costs & Expenses                                                                         $4,455         $6,279         $6,145
       Percent of revenues                                                                              65%            73%            68%



     Non-GAAP
     ($ in millions)                                                                            Q2'10          Q1'11          Q2'11
     Cost of Revenues                                                                               $2,459         $2,887         $3,121
       Percent of revenues                                                                              36%            34%            35%

     Research & Development                                                                             $696           $989           $987
       Percent of revenues                                                                              10%            12%            11%

     Sales & Marketing                                                                                  $573           $948       $1,017
       Percent of revenues                                                                               8%            11%            11%

     General & Administrative                                                                           $418           $523           $585
       Percent of revenues                                                                               7%             6%             6%



     Charge Related to Potential Resolution of Department of Justice Investigation                       $0             $0             $0
       Percent of revenues                                                                               0%             0%             0%

     Total Costs & Expenses                                                                         $4,146         $5,347         $5,710
       Percent of revenues                                                                              61%            62%            63%




                             Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and
6
                             expenses to GAAP costs and expenses
    Profitability

      GAAP
      ($ in millions except per share amounts)                             Q2'10             Q1'11             Q2'11
      Income from Operations                                                $    2,365        $    2,296       $   2,881

      Operating Margin                                                             35%               27%               32%

      Net Income                                                            $    1,840        $    1,798       $   2,505

      EPS (diluted)                                                         $      5.71       $      5.51      $       7.68




      Non-GAAP
      ($ in millions except per share amounts)                             Q2'10             Q1'11             Q2'11
      Income from Operations                                                $    2,674        $    3,228       $   3,316

      Operating Margin                                                             39%               38%               37%

      Net Income                                                            $    2,079        $    2,638       $   2,849

      EPS (diluted)                                                         $      6.45       $      8.08      $       8.74

              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)                  Q2'10      Q1'11      Q2'11

        Net cash provided by operating
        activities                         $2,085     $3,172     $3,519



        Less purchases of property and
        equipment                          ($476)     ($890)     ($917)




        Free cash flow (non-GAAP)          $1,609     $2,282     $2,602




8
        Overview of Q2 2011 OI&E and FX

    In Interest and Other Income, Net, we recognized net income of $204M for Q2

    •    In Q2, we recognized $212M of interest income earned on our investments and $75M
         in realized gains.

    •    We expensed $58M 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 2011 through Q2 2011, our revenue in Q2 2011 would
         have been $167M lower. Excluding gains related to our FX cash flow hedging program,
         had foreign exchange rates remained constant from Q2 2010 through Q2 2011, our
         revenue in Q2 2011 would have been $417M lower.

    •    In addition, our FX cash flow hedging program allowed us to recognize a benefit of
         approximately $4M to international revenue this quarter.




9
     Revenues by Geography



        ($ in millions)      Q2'10      Q1'11      Q2'11

        United States          $3,288     $4,005     $4,155


        United Kingdom          $770       $969       $976


        Rest of the world      $2,762     $3,601     $3,895


         Total Revenues        $6,820     $8,575     $9,026




10
         International Revenues Excluding Hedging and FX Impact (Y/Y)

     ($ in millions)                                                      Q2'10     Q2'11       ($ in millions)                                                      Q1'10       Q1'11

     UK revenues (GAAP)                                                     $770      $976      UK revenues (GAAP)                                                     $842        $969

     exclude:                                                                                   exclude:



       a) f/x impact on Q2'11 revenues using Q2'10 rates (gains)/losses       n/a      (81)       a) f/x impact on Q1'11 revenues using Q1'10 rates (gains)/losses       n/a             5

       b) hedging gains                                                      (19)           -     b) hedging gains                                                      (10)         (4)



     UK revenues excluding f/x and hedging impact (Non-GAAP)                $751      $895      UK revenues excluding f/x and hedging impact (Non-GAAP)                $832        $970


     Y/Y % (Non-GAAP)                                                                  19%      Y/Y % (Non-GAAP)                                                                    17%




     ($ in millions)                                                      Q2'10     Q2'11       ($ in millions)                                                      Q1'10       Q1'11

     ROW revenues (GAAP)                                                   $2,762    $3,895     ROW revenues (GAAP)                                                   $2,737      $3,601

     exclude:                                                                                   exclude:



       a) f/x impact on Q2'11 revenues using Q2'10 rates (gains)/losses       n/a     (336)       a) f/x impact on Q1'11 revenues using Q1'10 rates (gains)/losses       n/a        (28)

       b) hedging gains                                                      (60)       (4)       b) hedging gains                                                           -      (10)



     ROW revenues excluding f/x and hedging impact (Non-GAAP)              $2,702    $3,555     ROW revenues excluding f/x and hedging impact (Non-GAAP)              $2,737      $3,563


     Y/Y % (Non-GAAP)                                                                  32%      Y/Y % (Non-GAAP)                                                                    30%




11
         International Revenues Excluding Hedging and FX Impact (Q/Q)


     ($ in millions)                                                      Q1'11     Q2'11       ($ in millions)                                                      Q4'10     Q1'11

     UK revenues (GAAP)                                                     $969      $976      UK revenues (GAAP)                                                     $878      $969

     exclude:                                                                                   exclude:



       a) f/x impact on Q2'11 revenues using Q1'11 rates (gains)/losses       n/a      (29)       a) f/x impact on Q1'11 revenues using Q4'10 rates (gains)/losses       n/a           1
       b) hedging gains                                                       (4)           -     b) hedging gains                                                       (2)       (4)


     UK revenues excluding f/x and hedging impact (Non-GAAP)                $965      $947      UK revenues excluding f/x and hedging impact (Non-GAAP)                $876      $966


     Q/Q % (Non-GAAP)                                                                  -2%      Q/Q % (Non-GAAP)                                                                  10%




     ($ in millions)                                                      Q1'11     Q2'11       ($ in millions)                                                      Q4'10     Q1'11
     ROW revenues (GAAP)                                                   $3,601    $3,895     ROW revenues (GAAP)                                                   $3,507    $3,601
     exclude:                                                                                   exclude:



       a) f/x impact on Q2'11 revenues using Q1'11 rates (gains)/losses       n/a     (138)       a) f/x impact on Q1'11 revenues using Q4'10 rates (gains)/losses       n/a      (20)
       b) hedging gains                                                      (10)       (4)       b) hedging gains                                                      (23)      (10)


     ROW revenues excluding f/x and hedging impact (Non-GAAP)              $3,591    $3,753     ROW revenues excluding f/x and hedging impact (Non-GAAP)              $3,484    $3,571


     Q/Q % (Non-GAAP)                                                                   5%      Q/Q % (Non-GAAP)                                                                   2%




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)                                                                                Q2'10           Revenues (1)    Q1'11           Revenues (1)    Q2'11           Revenues (1)

 Cost of revenues (GAAP)                                                                         $    2,467               36%   $       2,936             34%   $       3,172             35%
 Less: Stock-based compensation expense                                                                   (8)                            (49)                            (51)
 Cost of revenues (non-GAAP)                                                                     $    2,459               36%   $       2,887             34%   $       3,121             35%


 Research and development (GAAP)                                                                 $       898              13%   $       1,226             14%   $       1,234             14%
 Less: Stock-based compensation expense                                                                 (202)                           (237)                           (247)
 Research and development (non-GAAP)                                                             $       696              10%   $        989              12%   $        987              11%


 Sales and marketing (GAAP)                                                                      $       629               9%   $       1,026             12%   $       1,091             12%
 Less: Stock-based compensation expense                                                                  (56)                            (78)                            (74)
 Sales and marketing (non-GAAP)                                                                  $       573               8%   $        948              11%   $       1,017             11%


 General and administrative (GAAP)                                                               $       461               7%   $        591               7%   $        648               7%
 Less: Stock-based compensation expense                                                                  (43)                            (68)                            (63)
 General and administrative (non-GAAP)                                                           $       418               7%   $        523               6%   $        585               6%



 Charge related to potential resolution of Department of Justice investigation
 (GAAP)                                                                                           $         -         -         $        500               6%    $          -         -


 Less: Charge related to potential resolution of Department of Justice investigation                        -                           (500)                               -

 Charge related to potential resolution of Department of Justice investigation (non-
 GAAP)                                                                                            $         -         -          $          -              0%    $          -         -


 Total costs and expenses (GAAP)                                                                 $    4,455               65%   $       6,279             73%   $       6,145             68%


 Less: Stock-based compensation expense and charge related to potential resolution of
 Department of Justice investigation                                                                    (309)                           (932)                           (435)

 Total costs and expenses (non-GAAP)                                                             $    4,146               61%   $       5,347             62%   $       5,710             63%


 (1) Percentages based on revenues of $6,820 million in Q2'10, $8,575 million in Q1'11 and $9,026 million in Q2'11.


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)                                                 Q2'10     Margin (1)            Q1'11    Margin (1)       Q2'11       Margin (1)

       Income from operations (GAAP)                                                        $    2,365              35% $        2,296           27% $     2,881              32%
       Add: Stock-based compensation expense                                                      309                             432                        435


       Add: Charge related to potential resolution of Department of Justice investigation           -                             500                             -

       Income from operations (non-GAAP)                                                    $    2,674              39% $        3,228           38% $     3,316              37%


       Net income (GAAP)                                                                    $    1,840                      $    1,798                $    2,505
       Add: Stock-based compensation expense (net of tax)                                         239                             340                        344


       Add: Charge related to potential resolution of Department of Justice investigation           -                             500                             -

       Net income (non-GAAP)                                                                $    2,079                      $    2,638                $    2,849


       Net income per share - diluted (GAAP)                                                $     5.71                      $     5.51                $      7.68

       Net income per share - diluted (non-GAAP)                                            $     6.45                      $     8.08                $      8.74

       Shares used in per share calculation - diluted                                             322                             326                        326




       (1) Percentages based on revenues of $6,820 million in Q2'10, $8,575 million in Q1'11 and $9,026 million in Q2'11.




14
    Q2 2011
Quarterly Earnings
    Summary

				
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