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2007 Q1 Google Earnings Slides

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  • 1. Q1 2007 Quarterly Earnings Summary
  • 2. First Quarter 2007 Highlights • Revenue growth of 63% Y/Y and 14% Q/Q – Revenue on Google properties up 76% year-over-year and 15% sequentially, driven primarily by traffic – Network revenues increased 45% year-over-year and 12% sequentially with positive contribution from existing & newer AdSense relationships as well as international traffic growth – International markets demonstrated positive seasonality; significant revenue contributions from the UK, Germany, and France and growth in emerging markets such as Korea • Continued progress in offline initiatives through partnerships with Clear Channel Radio and EchoStar • Introduced Google Apps Premier Edition, bringing more Google products and services to SMBs and enterprises • Continued investments in employees and infrastructure • Announced agreement to acquire DoubleClick (April) 2
  • 3. Quarterly Revenue $4,000 Q1’07 Y/Y Growth = 63% Q1’07 Q/Q Growth = 14% 3,664 $3,500 3,205 $ in millions $3,000 1,345 2,690 1,198 2,456 $2,500 2,254 1,037 1,919 $2,000 997 928 1,578 1,384 799 $1,500 1,257 675 2,282 630 $1,000 1,977 584 1,626 1,432 1,297 1,098 $500 885 737 657 $0 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Google.com Network Licensing and Other 3
  • 4. U.S. vs. International Revenue $4,000 Q1’07 Domestic = 53% of total revenue 3,664 Q1’07 International = 47% of total revenue $3,500 3,205 47% $ in millions $3,000 44% 2,690 2,456 $2,500 2,254 44% 42% 1,919 $2,000 42% 1,578 38% 1,384 $1,500 1,257 39% 39% 39% $1,000 $500 56% 56% 58% 53% 58% 62% 61% 61% 61% $0 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 US International 4
  • 5. Traffic Acquisition Costs $1,200 40% 1,125 37.2% 36.1% $1,100 976 34.0% $1,000 35% 33.2% 32.5% 32.3% $900 825 785 $800 30% 31.0% 31.0% 30.7% 723 $ in millions $700 629 $600 25% 530 494 462 $500 $400 20% $300 $200 15% $100 $0 10% Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 TAC TAC as % of Advertising Revenues 5
  • 6. Costs and Expenses GAAP $Millions Q1'06 Q4'06 Q1'07 Costs of Revenues $904.1 $1,283.1 $1,470.4 Percent of revenues 40.1% 40.0% 40.1% Research & Development $246.6 $386.8 $408.4 Percent of revenues 10.9% 12.1% 11.1% Sales & Marketing $190.9 $255.2 $302.6 Percent of revenues 8.5% 8.0% 8.3% General & Administrative $169.5 $219.8 $261.4 Percent of revenues 7.5% 6.9% 7.2% Total Costs & Expenses $1,511.1 $2,144.9 $2,442.8 Percent of revenues 67.0% 66.9% 66.7% Non-GAAP $Millions Q1'06 Q4'06 Q1'07 Costs of Revenues $901.8 $1,272.2 $1,466.0 Percent of revenues 40.0% 39.7% 40.0% Research & Development $173.5 $304.7 $287.6 Percent of revenues 7.7% 9.5% 7.8% Sales & Marketing $175.0 $240.7 $275.3 Percent of revenues 7.8% 7.5% 7.5% General & Administrative $116.1 $192.9 $230.0 Percent of revenues 5.2% 6.0% 6.3% Total Costs & Expenses $1,366.4 $2,010.5 $2,258.9 Percent of revenues 60.6% 62.7% 61.7% Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses 6
  • 7. Profitability GAAP $Millions Q1'06 Q4'06 Q1'07 Income from Operations $742.7 $1,060.6 $1,221.2 Operating Margin 33.0% 33.1% 33.3% Net Income $592.3 $1,030.7 $1,002.2 EPS (diluted) $1.95 $3.29 $3.18 Non-GAAP $Millions Q1'06 Q4'06 Q1'07 Income from Operations $887.4 $1,195.0 $1,405.1 Operating Margin 39.4% 37.3% 38.3% Net Income $697.2 $997.3 $1,159.3 EPS (diluted) $2.29 $3.18 $3.68 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 $Millions Q1'06 Q4'06 Q1'07 Net cash provided by operating activities $824.8 $910.8 $1,219.6 Less purchases of property and equipment ($344.9) ($366.6) ($596.9) Free cash flow (Non-GAAP) $479.9 $544.2 $622.7 8
  • 9. Key Takeaways • Google’s continued excellence and market leadership in core search and ads drove strong results in Q1 • International markets continue to be a significant opportunity • Further expansion of our partner network remains a key strategic initiative • Investments in infrastructure and employees are a competitive advantage and critical to our long-term success • Improving the quality of the user experience remains the most important factor in all our decisions 9
  • 10. Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses As a % of As a % of As a % of Revenues (1) Revenues (1) Revenues (1) $Millions Q1'06 Q4'06 Q1'07 Cost of Revenues (GAAP) $ 904.1 40.1% $ 1,283.1 40.0% $ 1,470.4 40.1% Less: Stock-based compensation (2.3) - (10.9) - (4.4) - Cost of Revenues (non-GAAP) $ 901.8 40.0% $ 1,272.2 39.7% $ 1,466.0 40.0% Research and development (GAAP) $ 246.6 10.9% $ 386.8 12.1% $ 408.4 11.1% Less: Stock-based compensation (73.1) - (82.1) - (120.8) - Research and development (non-GAAP) $ 173.5 7.7% $ 304.7 9.5% $ 287.6 7.8% Sales and marketing (GAAP) $ 190.9 8.5% $ 255.2 8.0% $ 302.6 8.3% Less: Stock-based compensation (15.9) - (14.5) - (27.3) - Sales and marketing (non-GAAP) $ 175.0 7.8% $ 240.7 7.5% $ 275.3 7.5% General and administrative (GAAP) $ 169.5 7.5% $ 219.8 6.9% $ 261.4 7.2% Less: plantiffs' attorneys' fees related to the settlement of the Lane's Gift litigation class action lawsuit (30.0) - - - - - Less: Stock-based compensation (23.4) - (26.9) - (31.4) - General and administrative (non-GAAP) $ 116.1 5.2% $ 192.9 6.0% $ 230.0 6.3% Total costs and expenses (GAAP) $ 1,511.1 67.0% $ 2,144.9 66.9% $ 2,442.8 66.7% Less: plantiffs' attorneys' fees related to the settlement of the Lane's Gift litigation class action lawsuit (30.0) - - - - - Less: Stock-based compensation (114.7) - (134.4) - (183.9) - Total costs and expenses (non-GAAP) $ 1,366.4 60.6% $ 2,010.5 62.7% $ 2,258.9 61.7% (1) Percentages based on GAAP revenues of $2,254 million in Q1 '06, $3,205 million in Q4 '06 and $3,664 million in Q1 '07 10
  • 11. Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures As a % of As a % of As a % of Revenues (1) Revenues (1) Revenues (1) $Millions except per share amounts Q1'06 Q4'06 Q1'07 Income from operations (GAAP) $ 742.7 33.0% $ 1,060.6 33.1% $ 1,221.2 33.3% Add: Stock-based compensation 114.7 - 134.4 - 183.9 - Add: Plantiffs' attorneys' fees related to the settlement of the Lane's Gift litigation class action lawsuit 30.0 - - - - - Income from operations (non-GAAP) $ 887.4 39.4% $ 1,195.0 37.3% $ 1,405.1 38.3% Net income (GAAP) $ 592.3 $ 1,030.7 $ 1,002.2 Add: Stock-based compensation (net of tax) 87.2 99.8 157.1 Add: Plantiffs' attorneys' fees related to the settlement of the Lane's Gift litigation class action lawsuit (net of tax) 17.7 - - Less: Advanced Pricing Agreement and R&D credit - (133.2) - Net income (non-GAAP) $ 697.2 $ 997.3 $ 1,159.3 Net income per share - diluted (GAAP) $1.95 $3.29 $3.18 Net income per share - diluted (non-GAAP) $2.29 $3.18 $3.68 Shares used in per share calculation - diluted 304 313 315 (1) Percentages based on GAAP revenues of $2,254 million in Q1 '06, $3,205 million in Q4 '06 and $3,664 million in Q1 '07 11
  • 12. Q1 2007 Quarterly Earnings Summary