2012 q2 google_earnings_slides

Q2 2012Quarterly Earnings Summary

Second Quarter 2012 Highlights• Consolidated revenue growth of 35% Y/Y and 15% Q/Q – Consolidated revenues were $12.2 billion • Google business revenues (advertising and other) were $11.0 billion – Google properties revenues increased 21% Y/Y and 3% Q/Q – Network revenues increased 20% Y/Y and 2% Q/Q • Motorola business revenues (hardware and other) were $1.3 billion * – Consolidated international revenues were $6.5 billion• Operational Highlights – Completed acquisition of Motorola on May 22, 2012 – Strong financial metrics: revenue growth, profitability, cash flow – Continuing to invest in three major areas of focus: • Core ads: Search and Display advertising • Businesses demonstrating high consumer success: YouTube, Android, Chrome • New businesses where we’re investing to drive adoption and innovation: Social, Enterprise, Commerce, Local * The operating results of Motorola were included for the period from the acquisition date of May 22, 2012 through June 30, 2012.2

Consolidated Quarterly Revenues $13,000 12,214 $12,000 Q2’12 Y/Y Growth = 35% Q2’12 Q/Q Growth = 15% 1,250 $11,000 10,584 10,645 $10,000 9,720 9,026 2,983 $9,000 2,880 2,913 8,440 8,575 2,595 ($ in millions) $8,000 7,286 2,484 6,820 2,495 2,427 $7,000 6,775 $6,000 2,199 2,036 2,063 $5,000 7,294 7,312 7,542 $4,000 6,740 6,232 5,672 5,879 $3,000 4,439 4,499 4,833 $2,000 $1,000 300 258 254 273 269 310 385 410 420 439 $0 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Other Google.com Network Motorola3

U.S. vs. International Revenues - Consolidated ($ in millions) 6,775 6,820 7,286 8,440 8,575 9,026 9,720 10,584 10,645 12,214 100% 90% 80% 53% 52% 52% 52% 53% 54% 53% 54% 53% 55% 70% 60% 50% 40% 30% 47% 48% 48% 48% 47% 46% 47% 46% 47% 45% 20% 10% 0% Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 US International4

Traffic Acquisition Costs $3,000 30.0% $2,500 26.4% 26.4% 25.7% 25.3% 24.5% 24.7% $2,000 24.5% 25.0% 24.2% 24.1% 23.7% ($ in millions) $1,500 2,600 2,453 2,510 2,210 2,069 2,038 2,110 $1,000 20.0% 1,732 1,805 1,711 $500 $0 15.0% Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 TAC TAC as % of Advertising Revenues5

Consolidated Costs and Expenses GAAP ($ in millions) Q211 Q112 Q212 Cost of Revenues $3,172 $3,789 $5,013 Percent of revenues 35% 36% 41% Research & Development $1,234 $1,441 $1,585 Percent of revenues 14% 13% 13% Sales & Marketing $1,091 $1,269 $1,433 Percent of revenues 12% 12% 12% General & Administrative $648 $757 $980 Percent of revenues 7% 7% 8% Total Costs & Expenses $6,145 $7,256 $9,011 Percent of revenues 68% 68% 74% Non-GAAP ($ in millions) Q211 Q112 Q212 Cost of Revenues $3,121 $3,715 $4,918 Percent of revenues 35% 35% 40% Research & Development $987 $1,142 $1,281 Percent of revenues 11% 11% 10% Sales & Marketing $1,017 $1,172 $1,294 Percent of revenues 11% 11% 11% General & Administrative $585 $671 $771 Percent of revenues 6% 6% 6% Total Costs & Expenses $5,710 $6,700 $8,264 Percent of revenues 63% 63% 68% Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses6

Profitability Consolidated GAAP ($ in millions except per share amounts) Q211 Q112 Q212 Income from Operations $ 2,881 $ 3,389 $ 3,203 Operating Margin 32% 32% 26% Net Income $ 2,505 $ 2,890 $ 2,785 EPS (diluted) $ 7.68 $ 8.75 $ 8.42 Non-GAAP ($ in millions except per share amounts) Q211 Q112 Q212 Income from Operations $ 3,316 $ 3,945 $ 3,950 Operating Margin 37% 37% 32% Net Income $ 2,849 $ 3,328 $ 3,346 EPS (diluted) $ 8.74 $ 10.08 $ 10.12 Google GAAP Q212 Income from Operations $ 3,436 Google Operating Margin 31% Non-GAAP Q212 Income from Operations $ 3,988 Google Operating Margin 36% Motorola GAAP Q212 Loss from Operations $ (233) Motorola Operating Margin -19% Non-GAAP Q212 Loss from Operations $ (38) Motorola Operating Margin -3%7 Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures

Consolidated Free Cash Flow ($ in millions) Q2’11 Q1’12 Q2’12 Net cash provided by operating activities $3,519 $3,694 $4,252 Less purchases of property and equipment ($917) ($607) ($774) Free cash flow (non-GAAP) $2,602 $3,087 $3,4788

Overview of Q2 2012 OI&E and FX • In Interest and Other Income, Net, we recognized net income of $254M for Q2 • In Q2, we recognized $180M of interest income earned on our investments and $55M in realized gains. In addition we recognized a $188M gain pertaining to divestiture of a business during Q2. • We expensed $120M related to our FX cash flow hedging program. • Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2012 through the second quarter of 2012, our Google business revenues in the second quarter of 2012 would have been $68 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2011 through the second quarter of 2012, our Google business revenues in the second quarter of 2012 would have been $350 million higher. • In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $81M to Google business international revenue this quarter.9

Google Business - Revenues by Geography ($ in millions) Q211 Q112 Q212 United States $ 4,155 $ 4,874 $ 5,005 United Kingdom 976 1,150 1,175 Rest of the world 3,895 4,621 4,784 Total Google Revenues $ 9,026 $ 10,645 $ 10,96410

Google Business - International Revenues Excluding Hedging and FX Impact (Y/Y) ($ in millions) Q211 Q212 ($ in millions) Q111 Q112 UK revenues (GAAP) $976 $1,175 UK revenues (GAAP) $969 $1,150 exclude: exclude: a) f/x impact on Q212 revenues using Q211 rates a) f/x impact on Q112 revenues using Q111 rates (gains)/losses n/a 30 (gains)/losses n/a 7 b) hedging gains - (7) b) hedging gains (4) (4) UK revenues excluding f/x and hedging impact (Non-GAAP) $976 $1,198 UK revenues excluding f/x and hedging impact (Non-GAAP) $965 $1,153 Y/Y % (Non-GAAP) 23% Y/Y % (Non-GAAP) 19% ($ in millions) Q211 Q212 ($ in millions) Q111 Q112 ROW revenues (GAAP) $3,895 $4,784 ROW revenues (GAAP) $3,601 $4,621 exclude: exclude: a) f/x impact on Q212 revenues using Q211 rates a) f/x impact on Q112 revenues using Q111 rates (gains)/losses n/a 320 (gains)/losses n/a 60 b) hedging gains (4) (74) b) hedging gains (10) (33) ROW revenues excluding f/x and hedging impact (Non- ROW revenues excluding f/x and hedging impact (Non- GAAP) $3,891 $5,030 GAAP) $3,591 $4,648 Y/Y % (Non-GAAP) 29% Y/Y % (Non-GAAP) 29%11

Google Business - International Revenues Excluding Hedging and FX Impact (Q/Q) ($ in millions) Q112 Q212 ($ in millions) Q411 Q112 UK revenues (GAAP) $1,150 $1,175 UK revenues (GAAP) $1,064 $1,150 exclude: exclude: a) f/x impact on Q212 revenues using Q112 rates a) f/x impact on Q112 revenues using Q411 rates (gains)/losses n/a (10) (gains)/losses n/a 4 b) hedging gains (4) (7) b) hedging gains (6) (4) UK revenues excluding f/x and hedging impact (Non-GAAP) $1,146 $1,158 UK revenues excluding f/x and hedging impact (Non-GAAP) $1,058 $1,150 Q/Q % (Non-GAAP) 1% Q/Q % (Non-GAAP) 9% ($ in millions) Q112 Q212 ($ in millions) Q411 Q112 ROW revenues (GAAP) $4,621 $4,784 ROW revenues (GAAP) $4,540 $4,621 exclude: exclude: a) f/x impact on Q212 revenues using Q112 rates a) f/x impact on Q112 revenues using Q411 rates (gains)/losses n/a 78 (gains)/losses n/a 75 b) hedging gains (33) (74) b) hedging gains (19) (33) ROW revenues excluding f/x and hedging impact (Non-GAAP) $4,588 $4,788 ROW revenues excluding f/x and hedging impact (Non-GAAP) $4,521 $4,663 Q/Q % (Non-GAAP) 4% Q/Q % (Non-GAAP) 3%12

Table 1 - Reconciliations of consolidated non-GAAP costs and expenses to GAAP costs and expenses As a % of As a % of As a % of ($ in millions) Q211 Revenues (1) Q112 Revenues (1) Q212 Revenues (1) Cost of revenues - (GAAP) $ 3,172 35% $ 3,789 36% $ 5,013 41% Less: non-GAAP adjustments (51) (74) (95) Cost of revenues - (non-GAAP) $ 3,121 35% $ 3,715 35% $ 4,918 40% Research and development - (GAAP) $ 1,234 14% $ 1,441 13% $ 1,585 13% Less: non-GAAP adjustments (247) (299) (304) Research and development (non-GAAP) $ 987 11% $ 1,142 11% $ 1,281 10% Sales and marketing - (GAAP) $ 1,091 12% $ 1,269 12% $ 1,433 12% Less: non-GAAP adjustments (74) (97) (139) Sales and marketing (non-GAAP) $ 1,017 11% $ 1,172 11% $ 1,294 11% General and administrative - (GAAP) $ 648 7% $ 757 7% $ 980 8% Less: non-GAAP adjustments (63) (86) (209) General and administrative (non-GAAP) $ 585 6% $ 671 6% $ 771 6% Total costs and expenses (GAAP) $ 6,145 68% $ 7,256 68% $ 9,011 74% Less: non-GAAP adjustments (435) (556) (747) Total costs and expenses (non-GAAP) $ 5,710 63% $ 6,700 63% $ 8,264 68% (1) Percentages based on consolidated revenues of $9,026 million in Q211, $10,645 million in Q112, and $12,214 million in Q212. (2) Pertains to stock-based compensation expense and charge related to severance and benefit arrangements in connection with the Motorola acquisition.13

Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measuresConsolidated Operating Operating Operating(In millions except per share amounts) Q211 Margin (1) Q112 Margin (1) Q212 Margin (1)Income from operations (GAAP) $ 2,881 32% $ 3,389 32% $ 3,203 26%Add: Stock-based compensation expense 435 556 565Add: Severance and benefit arrangements in connection with the Motorola acquisition - - 182 (3)Income from operations (non-GAAP) $ 3,316 37% $ 3,945 37% $ 3,950 32%Net income (GAAP) $ 2,505 $ 2,890 $ 2,785Add: Stock-based compensation expense (net of tax) (2) 344 438 430Add: Severance and benefit arrangements in connection with the Motorola acquisition (net of tax) (2) - - 131Net income (non-GAAP) $ 2,849 $ 3,328 $ 3,346Net income per share - diluted (GAAP) $ 7.68 $ 8.75 $ 8.42Net income per share - diluted (non-GAAP) $ 8.74 $ 10.08 $ 10.12Shares used in per share calculation - diluted 326 330 331(1) Percentages based on consolidated revenues of $9,026 million in Q211, $10,645 million in Q112, and $12,214 million in Q212.(2) The tax effects are calculated using the tax-deductible portion of stock-based compensation expense and the charge related to severance and benefit arrangements in connection with the Motorola acquisition, andapplying the entity-specific, U.S. federal and blended state tax rates.(3) Includes $93 million of stock-based compensation expense.By Business Google Motorola Operating Operating(In millions) Q212 Margin (4) Q212 Margin (4)Income (Loss) from operations (GAAP) $ 3,436 31% $ (233) -19%Add: Stock-based compensation expense 552 13Add: Severance and benefit arrangements in connection with the Motorola acquisition - 182 (3)Income (Loss) from operations (non-GAAP) $ 3,988 36% $ (38) -3%(4) Percentages based on Google revenues of $10,964 million in Q212 and Motorola revenues of $1,250 million in Q212. 14

Q2 2012Quarterly Earnings Summary

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2012 q2 google_earnings_slides

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