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- 1. Q3 2010 Quarterly Earnings Summary
- 2. Third Quarter 2010 Highlights • Revenue growth of 23% Y/Y and 7% Q/Q – Google properties revenue increased 22% Y/Y and 7% Q/Q – Network revenues increased 22% Y/Y and 7% Q/Q – International revenues were $3.8 billion • Operational Highlights – Strong financial metrics: revenue growth, profitability and cash flow – Continuing to invest heavily in our growth agenda • Investing in People -- to attract, retain, and reward the best talent • Investing in Products -- to leverage computer science to solve big problems 2
- 3. Quarterly Revenues Q3’10 Y/Y Growth = 23% Q3’10 Q/Q Growth = 7% $7,500 7,286 $7,000 6,820 6,674 6,775 $6,500 5,945 2,199 $6,000 5,701 5,509 5,523 2,036 2,063 $5,500 5,186 5,367 5,541 2,044 $5,000 1,801 ($ in millions) 1,693 1,680 1,638 1,684 $4,500 1,655 1,686 $4,000 $3,500 $3,000 $4,833 $2,500 4,421 4,439 4,499 3,811 3,653 3,956 $2,000 3,530 3,672 3,693 3,400 $1,500 $1,000 $500 100 182 189 197 178 186 188 209 300 258 254 $0 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 3 Other Google.com Network
- 4. U.S. vs. International Revenues ($ in millions) 5,186 5,367 5,541 5,701 5,509 5,523 5,945 6,674 6,775 6,820 7,286 100% 90% 80% 51% 52% 51% 50% 52% 53% 53% 53% 53% 52% 52% 70% 60% 50% 40% 30% 49% 48% 49% 50% 48% 47% 47% 47% 47% 48% 48% 20% 10% 0% Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 US International 4
- 5. Traffic Acquisition Costs $1,900 40% $1,800 $1,700 $1,600 35% $1,500 $1,400 $1,300 29.2% 28.4% 30% $1,200 27.9% 26.9% 26.9% 27.2% 27.1% 26.6% 26.4% 26.4% ($ in millions) $1,100 25.7% $1,000 25% $900 1,805 1,721 1,711 1,732 $800 1,559 1,486 1,474 1,495 1,483 1,436 1,453 $700 $600 20% $500 $400 $300 15% $200 $100 $0 10% Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 TAC TAC as % of Advertising Revenues 5
- 6. Costs and Expenses GAAP ($ in millions) Q3'09 Q2'10 Q3'10 Cost of Revenues $2,226 $2,467 $2,552 Percent of revenues 37% 36% 35% Research & Development $758 $898 $994 Percent of revenues 13% 13% 14% Sales & Marketing $498 $629 $661 Percent of revenues 8% 9% 9% General & Administrative $389 $461 $532 Percent of revenues 7% 7% 7% Total Costs & Expenses $3,871 $4,455 $4,739 Percent of revenues 65% 65% 65% Non-GAAP ($ in millions) Q3'09 Q2'10 Q3'10 Cost of Revenues $2,211 $2,459 $2,544 Percent of revenues 37% 36% 35% Research & Development $562 $696 $750 Percent of revenues 10% 10% 10% Sales & Marketing $436 $573 $586 Percent of revenues 7% 8% 8% General & Administrative $344 $418 $479 Percent of revenues 6% 7% 7% Total Costs & Expenses $3,553 $4,146 $4,359 Percent of revenues 60% 61% 60% Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses 6
- 7. Profitability GAAP ($ in millions except per share amounts) Q3'09 Q2'10 Q3'10 Income from Operations $ 2,074 $ 2,365 $ 2,547 Operating Margin 35% 35% 35% Net Income $ 1,639 $ 1,840 $ 2,167 EPS (diluted) $ 5.13 $ 5.71 $ 6.72 Non-GAAP ($ in millions except per share amounts) Q3'09 Q2'10 Q3'10 Income from Operations $ 2,392 $ 2,674 $ 2,927 Operating Margin 40% 39% 40% Net Income $ 1,884 $ 2,079 $ 2,462 EPS (diluted) $ 5.89 $ 6.45 $ 7.64 Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures 7
- 8. Free Cash Flow ($ in millions) Q3'09 Q2'10 Q3'10 Net cash provided by operating activities $2,726 $2,085 $2,886 Less purchases of property and equipment ($186) ($476) ($757) Free cash flow (non-GAAP) $2,540 $1,609 $2,129 8
- 9. Overview of Q3 2010 OI&E and FX In Interest and Other Income (Expense), Net, we recognized net income of $167M for Q3 • In Q3, we recognized $172M of interest income earned on our investments and $62M in realized gains. • We expensed $60M 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 Q2 2010 through Q3 2010, our revenue in Q3 2010 would have been $9M lower. Excluding gains related to our FX cash flow hedging program, had foreign exchange rates remained constant from Q3 2009 through Q3 2010, our revenue in Q3 2010 would have been $169M higher. • In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $89M to international revenue this quarter. 9
- 10. Revenues by Geography ($ in millions) Q3'09 Q2'10 Q3'10 United States $2,802 $3,288 $3,517 United Kingdom $765 $770 $840 Rest of the World $2,378 $2,762 $2,929 Total Revenues $5,945 $6,820 $7,286 10
- 11. International Revenues Excluding Hedging and FX Impact (Y/Y) ($ in millions) Q3'09 Q3'10 ($ in millions) Q2'09 Q2'10 UK revenues (GAAP) $765 $840 UK revenues (GAAP) $715 $770 exclude: exclude: a) f/x impact on Q3'10 revenues using Q3'09 rates a) f/x impact on Q2'10 revenues using Q2'09 rates (gains)/losses n/a 50 (gains)/losses n/a 5 b) hedging gains (25) (11) b) hedging gains (67) (19) UK revenues excluding f/x and hedging impact (Non- UK revenues excluding f/x and hedging impact (Non- GAAP) $740 $879 GAAP) $648 $756 Y/Y % (Non-GAAP) 19% Y/Y % (Non-GAAP) 17% ($ in millions) Q3'09 Q3'10 ($ in millions) Q2'09 Q2'10 ROW revenues (GAAP) $2,378 $2,929 ROW revenues (GAAP) $2,199 $2,762 exclude: exclude: a) f/x impact on Q3'10 revenues using Q3'09 rates a) f/x impact on Q2'10 revenues using Q2'09 rates (gains)/losses n/a 119 (gains)/losses n/a (29) b) hedging gains (14) (78) b) hedging gains (57) (60) ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact (Non-GAAP) $2,364 $2,970 (Non-GAAP) $2,142 $2,673 Y/Y % (Non-GAAP) 26% Y/Y % (Non-GAAP) 25% 11
- 12. International Revenues Excluding Hedging and FX Impact (Q/Q) ($ in millions) Q2'10 Q3'10 ($ in millions) Q1'10 Q2'10 UK Revenues (GAAP) $770 $840 UK Revenues (GAAP) $842 $770 exclude: exclude: a) f/x impact on Q3'10 revenues using Q2'10 rates a) f/x impact on Q2'10 revenues using Q1'10 rates (gains)/losses n/a (24) (gains)/losses n/a 47 b) hedging gains (19) (11) b) hedging gains (10) (19) UK revenues excluding f/x and hedging impact (Non- UK revenues excluding f/x and hedging impact (Non- GAAP) $751 $805 GAAP) $832 $798 Q/Q % (Non-GAAP) 7% Q/Q % (Non-GAAP) -4% ($ in millions) Q2'10 Q3'10 ($ in millions) Q1'10 Q2'10 ROW Revenues (GAAP) $2,762 $2,929 ROW Revenues (GAAP) $2,737 $2,762 exclude: exclude: a) f/x impact on Q3'10 revenues using Q2'10 rates a) f/x impact on Q2'10 revenues using Q1'10 rates (gains)/losses n/a 15 (gains)/losses n/a 129 b) hedging gains (60) (78) b) hedging gains - (60) ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact (Non-GAAP) $2,702 $2,866 (Non-GAAP) $2,737 $2,831 Q/Q % (Non-GAAP) 6% Q/Q % (Non-GAAP) 3% 12
- 13. Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses As a % of As a % of As a % of ($ in millions) Q3'09 Revenues (1) Q2'10 Revenues (1) Q3'10 Revenues (1) Cost of revenues (GAAP) $ 2,226 37% $ 2,467 36% $ 2,552 35% Less: Stock-based compensation expense (15) (8) (8) Cost of revenues (non-GAAP) $ 2,211 37% $ 2,459 36% $ 2,544 35% Research and development (GAAP) $ 758 13% $ 898 13% $ 994 14% Less: Stock-based compensation expense (196) (202) (244) Research and development (non-GAAP) $ 562 10% $ 696 10% $ 750 10% Sales and marketing (GAAP) $ 498 8% $ 629 9% $ 661 9% Less: Stock-based compensation expense (62) (56) (75) Sales and marketing (non-GAAP) $ 436 7% $ 573 8% $ 586 8% General and administrative (GAAP) $ 389 7% $ 461 7% $ 532 7% Less: Stock-based compensation expense (45) (43) (53) General and administrative (non-GAAP) $ 344 6% $ 418 7% $ 479 7% Total costs and expenses (GAAP) $ 3,871 65% $ 4,455 65% $ 4,739 65% Less: Stock-based compensation expense (318) (309) (380) Total costs and expenses (non-GAAP) $ 3,553 60% $ 4,146 61% $ 4,359 60% (1) Percentages based on revenues of $5,945 million in Q3'09, $6,820 million in Q2'10 and $7,286 million in Q3'10. 13
- 14. Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures Operating Operating Operating ($ in millions except per share amounts) Q3'09 Margin (1) Q2'10 Margin (1) Q3'10 Margin (1) Income from operations (GAAP) $ 2,074 35% $ 2,365 35% $ 2,547 35% Add: Stock-based compensation expense 318 309 380 Income from operations (non-GAAP) $ 2,392 40% $ 2,674 39% $ 2,927 40% Net income (GAAP) $ 1,639 $ 1,840 $ 2,167 Add: Stock-based compensation expense (net of tax) 245 239 295 Net income (non-GAAP) $ 1,884 $ 2,079 $ 2,462 Net income per share - diluted (GAAP) $ 5.13 $ 5.71 $ 6.72 Net income per share - diluted (non-GAAP) $ 5.89 $ 6.45 $ 7.64 Shares used in per share calculation - diluted 320 322 322 (1) Percentages based on revenues of $5,945 million in Q3'09, $6,820 million in Q2'10 and $7,286 million in Q3'10. 14
- 15. Q3 2010 Quarterly Earnings Summary

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