Q3 2009
Quarterly Earnings
    Summary
Third Quarter 2009 Highlights
    • Revenue growth of 7% Y/Y and 8% Q/Q
      –   Google properties revenue growth of 8% Y...
Quarterly Revenues
                             Q3’09 Y/Y Growth = 7%
                             Q3’09 Q/Q Growth = 8%  ...
U.S. vs.
    U S vs International Revenues
                                       ($ in millions)
              5,186   5,...
Traffic Acquisition Costs
                    $1,600                                                                      ...
Costs and Expenses
          GAAP
          $Millions                                  Q3'08           Q2'09            Q3...
Profitability
       GAAP
       $Millions (except per share amounts)                           Q3'08               Q2'09 ...
Free Cash Flow



          $Millions                    Q3'08     Q2'09     Q3'09
          Net cash provided by
        ...
Overview of Q3 2009 OI&E and FX
    In Interest and Other Expenses, we had a net expense of $7M for Q3

    • In Q3 the in...
Table 1 - Reconciliations of non-GAAP costs and expenses
        to GAAP costs and expenses
                              ...
Table 2 - Reconciliations of non-GAAP results of operations
         measures to the nearest comparable GAAP measures



 ...
Q3 2009
Quarterly Earnings
    Summary
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Q3 2009 Earning Report of Google Inc.

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Q3 2009 Earning Report of Google Inc.

  1. 1. Q3 2009 Quarterly Earnings Summary
  2. 2. Third Quarter 2009 Highlights • Revenue growth of 7% Y/Y and 8% Q/Q – Google properties revenue growth of 8% Y/Y and Q/Q G l ti th f d – Network revenues increased 7% Y/Y and Q/Q – International revenues were $3.1 billion • Operational Highlights – Strong financial metrics: revenue growth, profitability, and cash flow – Investing in Innovation: 70/20/10 • Innovation in our Core Business – Creating the Perfect Search Engine and Better Ads • Innovation in our Emerging Businesses – Mobile/Android – Display/YouTube – Enterprise 2
  3. 3. Quarterly Revenues Q3’09 Y/Y Growth = 7% Q3’09 Q/Q Growth = 8% 5,945 $6,000 5,541 5 541 5,701 5,367 5,509 5,523 $5,500 5,186 $5,000 1,801 1,693 $4,500 1,680 1,638 1,684 1,655 1 655 1,686 $ in millions $4,000 $3,500 $3,000 $3 000 $2,500 $2,000 3,811 3,956 3,672 3,693 3,653 3,400 3,530 $1,500 $1,000 $500 $0 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 3 Google.com Network Licensing and Other
  4. 4. U.S. vs. U S vs International Revenues ($ in millions) 5,186 5,367 5,541 5,701 5,509 5,523 5,945 100% 90% 80% 70% 51% 52% 51% 50% 52% 53% 53% 60% 50% 40% 49% 48% 49% 50% 48% 47% 47% 30% 20% 10% 0% Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 US International 4
  5. 5. Traffic Acquisition Costs $1,600 40% $1,500 $1,400 35% $1,300 $1,200 $1,100 $1 100 29.2% 29 2% 28.4% 30% 27.9% $1,000 26.9% 26.9% 27.2% 27.1% $ in millions $900 $800 1,559 25% , 1,486 1,474 1,495 , , 1,483 1,436 1 436 1,453 1 453 n $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 TAC TAC as % of Advertising Revenues 5
  6. 6. Costs and Expenses GAAP $Millions Q3'08 Q2'09 Q3'09 Cost of Revenues $2,173 $2 173 $2,108 $2 108 $2,226 $2 226 Percent of revenues 39% 38% 37% Research & Development $705 $708 $758 Percent of revenues 13% 13% 13% Sales & Marketing $509 $469 $498 Percent of revenues 9% 8% 8% General & Administrative G l Ad i i t ti $507 $ $364 $ $389 $ Percent of revenues 9% 7% 7% Total Costs & Expenses $3,894 $3,649 $3,871 Percent of revenues 70% 66% 65% Non-GAAP $Millions Q3'08 Q2'09 Q3'09 Cost of Revenues $2,162 $2,094 $2,211 Percent of revenues 39% 38% 37% Research & Development $536 $526 $563 Percent of revenues 10% 10% 10% Sales & Marketing $445 $412 $436 Percent of revenues 8% 7% 7% General & Administrative $376 $324 $344 Percent of revenues 7% 6% 6% Total Costs & Expenses $3,519 $3,356 $3,554 Percent of revenues 64% 61% 60% Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses 6
  7. 7. Profitability GAAP $Millions (except per share amounts) Q3'08 Q2'09 Q3'09 Income from Operations $1,648 $ 1,874 $ 2,074 Operating Margin 30% 34% 35% Net Income $1,290 $ 1,485 $ 1,639 EPS (diluted) $4.06 $ 4.66 $ 5.13 Non-GAAP $Millions (except per share amounts) $Milli ( t h t ) Q3'08 Q2'09 Q3'09 Income from Operations $2,023 $ 2,167 $ 2,391 Operating Margin 37% 39% 40% Net Income $1,563 $ 1,708 $ 1,884 EPS (diluted) $4.92 $ 5.36 $ 5.89 Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations pp g p measures to the nearest comparable GAAP measures 7
  8. 8. Free Cash Flow $Millions Q3'08 Q2'09 Q3'09 Net cash provided by operating activities $2,185 $1,609 $2,726 Less purchases of property and equipment q p ($ ($452) ) ($ ($139) ) ($ ($186) ) Free cash flow (Non-GAAP) $1,733 $1,470 $2,540 8
  9. 9. Overview of Q3 2009 OI&E and FX In Interest and Other Expenses, we had a net expense of $7M for Q3 • In Q3 the interest income earned on our investments was $47M and we recognized Q3, $19M in realized gains. • Given the context of where we are now in the economic cycle, we have revised our approach to focus again on increasing our long-term expected returns and began this pp g g g p g transition in Q3. • Primarily as a result of our average option strike price having moved closer to the market FX rate in Q3 relative to that in Q2, we expensed $67M related to our cash flow FX hedging program, compared to $ $93M in Q2. • Also, our cash flow FX hedging programs allowed us to recognize a benefit of approximately $39M to international revenue this quarter. • Before hedging, the recent weakening of the USD relative to other currencies had a positive impact of $166M on revenue in Q3 compared to the prior quarter, but the strengthening of the USD compared to Q3 of the prior year resulted in a negative impact of roughly $297M $297M. 9
  10. 10. Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses As a % of As a % of As a % of $Millions Q3'08 Revenues (1) Q2'09 Revenues (1) Q3'09 Revenues (1) Cost of revenues (GAAP) ( ) $ 2,173 , 39% $ 2,108 , 38% $ 2,226 , 37% Less: Stock-based compensation expense (11) (14) (15) Cost of revenues (non-GAAP) $ 2,162 39% $ 2,094 38% $ 2,211 37% Research and development (GAAP) $ 705 13% $ 708 13% $ 758 13% Less: Stock-based compensation expense (169) (182) (195) Research and development (non GAAP) (non-GAAP) $ 536 10% $ 526 10% $ 563 10% Sales and marketing (GAAP) $ 509 9% $ 469 8% $ 498 8% Less: Stock-based compensation expense (64) (57) (62) Sales and marketing (non-GAAP) $ 445 8% $ 412 7% $ 436 7% General and administrative (GAAP) administrati e $ 507 9% $ 364 7% $ 389 7% Less: Stock-based compensation expense (36) (40) (45) Less: Settlement agreement with the Authors Guild and the Association of American Publishers ("AAP") (95) - - General and administrative (non-GAAP) $ 376 7% $ 324 6% $ 344 6% Total costs and expenses (GAAP) $ 3,894 70% $ 3,649 66% $ 3,871 65% Less: Stock-based compensation expense and settlement agreement with the Authors Guild and the AAP (375) (293) (317) Total costs and expenses (non-GAAP) $ 3,519 64% $ 3,356 61% $ 3,554 60% (1) Percentages based on revenues of $5,541 million in Q3'08, $5,523 million in Q2'09 and $5,945 million in Q3'09. 10
  11. 11. Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures Operating Operating Operating $ millions except per share amounts Q3'08 Margin (1) Q2'09 Margin (1) Q3'09 Margin (1) Income from operations (GAAP) $ 1,648 30% $ 1,874 34% $ 2,074 35% Add: Stock-based compensation expense 280 293 317 Add: Add Settlement agreement with the A thors G ild and the AAP ith Authors Guild 95 - - Income from operations (non-GAAP) $ 2,023 37% $ 2,167 39% $ 2,391 40% Net income (GAAP) $ 1,290 $ 1,485 $ 1,639 Add: Stock-based compensation expense (net of tax) 217 223 245 Add: Settlement agreement with the Authors Guild and the AAP (net of tax) 56 - - Net income (non-GAAP) $ 1,563 $ 1,708 $ 1,884 Net income per share - diluted (GAAP) $ 4.06 $ 4.66 $ 5.13 Net income per share - diluted (non-GAAP) $ 4.92 $ 5.36 $ 5.89 Shares used in per share calculation - diluted 318 319 320 (1) Percentages based on revenues of $5,541 million in Q3'08, $5,523 million in Q2'09 and $5,945 million in Q3'09. 11
  12. 12. Q3 2009 Quarterly Earnings Summary
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