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2014 q2 google_earnings_slides

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  • 1. Google Confidential and Proprietary Q2 2014 Quarterly Earnings Summary
  • 2. Financial Highlights: Revenue growth of 22% Y/Y and 3% Q/Q. Revenues were $15.96 billion. • Google sites revenues increased 23% Y/Y and 4% Q/Q • Network revenues increased 7% Y/Y and 1% Q/Q • Other revenues increased 53% Y/Y and 3% Q/Q • Consolidated international revenues were $9.33 billion. Q2 2014 Highlights Operational Highlights: Strong financial metrics: revenue growth and cash flow. Continuing to invest in three major areas of focus: • Core ads: Search and Display advertising • Businesses demonstrating high consumer success: YouTube, Android/Play, and Chrome • New businesses where we are investing to drive adoption and innovation: Social, Commerce, and Enterprise Our infrastructure, real estate, and facilities continue to be key strategic areas of investment. 2 Please note: Results from Motorola Mobile are presented as net loss from discontinued operations on the consolidated statements of income, and are excluded from all other results unless otherwise noted. Previously reported quarters have been adjusted to conform with current period presentation. All references to share and per share amounts have been retroactively restated to reflect the stock-split which was effected in the form of a stock dividend on April 2, 2014.
  • 3. ($ in millions) Revenues by Revenue Source Other Google Sites Network $20,000 $15,000 $10,000 $5,000 $0 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Quarterly Revenues Q2'14 Y/Y Change = 22% Q2'14 Q/Q Change = 3% ($ in millions) 3,522 10,538 1,647 3,148 9,376 1,230 3,262 2,983 3,436 3,133 3,193 7,542 7,727 666439 8,6408,640 829 1,049 1,046 8,868 U.S. vs. International US International 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 46% 47% 46% 45% 45% 44% 44% 43% 42% 54% 53% 54% 55% 55% 56% 56% 57% 58% 3 10,964 15,955 3,424 10,935 1,596 11,526 12,905 12,951 13,754 15,707 13,107 15,95510,964 11,526 12,905 12,951 13,107 13,754 15,707 3,397 10,469 1,554 15,420 15,420
  • 4. Paid Clicks (1) Aggregated Network Google Sites 50% 40% 30% 20% 10% 0% Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 20% 23% 26% 31% 26% 25% 20% 13% 5% 10% 9% 9% 20% 29% 40% 44% 37% 33% 3 Aggregated Network Google Sites 20% 15% 10% 5% 0% -5% -10% Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 3% 4% 8% 13% -1% 2% 5% -5% 3% 7% 4% -5% 2% 9% 11% 16% -3% 6% Y/Y Paid Clicks Growth % Q/Q Paid Clicks Growth % (1) Include clicks related to ads served on Google owned and operated properties across different geographies and form factors including search, YouTube engagement ads like TrueView, and other owned and operated properties like Maps and Finance, as well as clicks related to ads served on non-Google properties participating in our AdSense for Search, AdSense for Content, and AdMob businesses.
  • 5. Cost-Per-Click Aggregated Network Google Sites 0% -5% -10% -15% -20% Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 -4% -6% -8% -11% -9% -6% -9% -5% -6% -11% -12% -13% -2% -8% -13% -15% -11% -7% 3 Aggregated Network Google Sites 6% 4% 2% 0% -2% -4% -6% -8% -10% Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 -4% -2% -4% -2% 0% 0% -7% 4% -7% 0% -8% 3% -2% -6% -5% -4% 3% -2% Y/Y Cost-Per-Click Growth % Q/Q Cost-Per-Click Growth %
  • 6. Traffic Acquisition Costs TAC (in millions) TAC as % of Advertising Revenues $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 (inmillions) 30% 25% 20% 15% Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 2,600 2,770 3,076 2,962 3,013 2,972 3,311 3,232 3,293 24.7% 25.5% 25.5% 24.9% 25.0% 23.7% 23.5% 23.3% 22.9% 4
  • 7. Costs and Expenses GAAP Q2 2013 Q1 2014 Q2 2014 $ in millions As % of revenues $ in millions As % of revenues $ in millions As % of revenues Cost of Revenues $5,195 40% $5,961 39% $6,114 38% Research & Development $1,766 13% $2,126 14% $2,238 14% Sales & Marketing $1,583 12% $1,729 11% $1,941 12% General & Administrative $1,098 9% $1,489 9% $1,404 9% Total Costs & Expenses $9,642 74% $11,305 73% $11,697 73% Non-GAAP Q2 2013 Q1 2014 Q2 2014 $ in millions As % of revenues $ in millions As % of revenues $ in millions As % of revenues Cost of Revenues $5,085 39% $5,866 38% $6,014 38% Research & Development $1,365 10% $1,670 11% $1,791 11% Sales & Marketing $1,458 11% $1,582 10% $1,783 11% General & Administrative $991 8% $1,348 9% $1,229 8% Total Costs & Expenses $8,899 68% $10,466 68% $10,817 68% Please refer to Table 1 for reconciliations of consolidated GAAP to non-GAAP costs and expenses. 5
  • 8. Profitability (1) Percentages based on revenues of $13,107 million in Q2 2013, $15,420 million in Q1 2014 and $15,955 million in Q2 2014. Please refer to Table 2 for reconciliations of non-GAAP consolidated results of operations measures to the nearest comparable GAAP measures. GAAP ($ in millions) Q2 2013 Q1 2014 Q2 2014 Income from Operations $3,465 $4,115 $4,258 Operating margin (1) 26% 27% 27% Net Income from continuing operations $2,774 $3,650 $3,490 Net Income (loss) from discontinued operations $454 $(198) $(68) Net Income $3,228 $3,452 $3,422 EPS (Diluted) - continuing operations $4.10 $5.33 $5.09 EPS (Diluted) - discontinued operations $0.67 $(0.29) $(0.10) EPS (Diluted) $4.77 $5.04 $4.99 Non-GAAP ($ in millions) Q2 2013 Q1 2014 Q2 2014 Income from Operations $4,208 $4,954 $5,138 Operating margin (1) 32% 32% 32% Net Income $3,357 $4,299 $4,175 EPS (Diluted) $4.96 $6.27 $6.08 6
  • 9. Consolidated Free Cash Flow (1) Including Motorola Home through the date of disposal (April 17, 2013). (2) Including Motorola Mobile. Non-GAAP ($ in millions) Q2 2013 (1)(2) Q1 2014 (2) Q2 2014 (2) Net cash provided by operating activities $4,705 $4,391 $5,627 Less: Purchases of property and equipment $(1,611) $(2,345) $(2,646) Free Cash Flow $3,094 $2,046 $2,981 7
  • 10. Overview of Q2 2014 OI&E and FX • In Q2, we recognized $145M of Interest and Other Income, net. • In Q2, we recognized $169M of interest income earned on our investments, $48M of net realized gains on marketable securities, $23M of realized gain on equity interests, $21M of gains on non-marketable equity investments and $27M of interest expense on our long-term debt. • We recognized $93M of foreign exchange loss, of which $67M related to the cost of 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 2014 through the second quarter of 2014, our revenues in the second quarter of 2014 would have been $77M lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2013 through the second quarter of 2014, our revenues in the second quarter of 2014 would have been $120M lower. • Our FX cash flow hedging program allowed us to recognize a benefit of approximately $6M to international revenues this quarter. 8
  • 11. Revenues by Geography ($ in millions) Q2 2013 Q1 2014 Q2 2014 United States $5,896 $6,656 $6,630 United Kingdom 1,321 1,583 1,616 Rest of the world 5,890 7,181 7,709 Total Revenues $13,107 $15,420 $15,955 9
  • 12. International Revenues excluding Hedging and FX Impact (Y/Y) ($ in millions) Q2 2013 Q2 2014 UK revenues (GAAP) $1,321 $1,616 exclude: a) f/x impact on Q2'14 revenues using Q2'13 rates n/a (124) b) hedging gains (24) 0 UK revenues excluding f/x and hedging impact (Non- GAAP) $1,297 $1,492 Y/Y% (Non-GAAP) 15% ($ in millions) Q2 2013 Q2 2014 ROW revenues (GAAP) $5,890 $7,709 exclude: a) f/x impact on Q2'14 revenues using Q2'13 rates n/a 4 b) hedging gains (11) (6) ROW revenues excluding f/x and hedging impact (Non- GAAP) $5,879 $7,707 Y/Y% (Non-GAAP) 31% 10
  • 13. International Revenues excluding Hedging and FX Impact (Q/Q) ($ in millions) Q1 2014 Q2 2014 UK revenues (GAAP) $1,583 $1,616 exclude: a) f/x impact on Q2'14 revenues using Q1'14 rates n/a (16) b) hedging gains 0 0 UK revenues excluding f/x and hedging impact (Non-GAAP) $1,583 $1,600 Q/Q% (Non-GAAP) 1% ($ in millions) Q1 2014 Q2 2014 ROW revenues (GAAP) $7,181 $7,709 exclude: a) f/x impact on Q2'14 revenues using Q1'14 rates n/a (61) b) hedging gains (8) (6) ROW revenues excluding f/x and hedging impact (Non- GAAP) $7,173 $7,642 Q/Q% (Non-GAAP) 7% 11
  • 14. (1) Percentages based on revenues of $13,107 million in Q2 2013, $15,420 million in Q1 2014 and $15,955 million in Q2 2014. (2) Includes Google stock-based compensation expense. Table 1 - Reconciliations of consolidated GAAP to non-GAAP costs and expenses Q2 2013 Q1 2014 Q2 2014 $ in millions As a % of revenues (1) $ in millions As a % of revenues (1) $ in millions As a % of revenues (1) Cost of Revenues (GAAP) $5,195 40% $5,961 39% $6,114 38% Less: Non-GAAP adjustments (2) $(110) $(95) $(100) Cost of Revenues (non-GAAP) $5,085 39% $5,866 38% $6,014 38% Research & Development (GAAP) $1,766 13% $2,126 14% $2,238 14% Less: Non-GAAP adjustments (2) $(401) $(456) $(447) Research & Development (non-GAAP) $1,365 10% $1,670 11% $1,791 11% Sales & Marketing (GAAP) $1,583 12% $1,729 11% $1,941 12% Less: Non-GAAP adjustments (2) $(125) $(147) $(158) Sales & Marketing (non-GAAP) $1,458 11% $1,582 10% $1,783 11% General & Administrative (GAAP) $1,098 9% $1,489 9% $1,404 9% Less: Non-GAAP adjustments (2) $(107) $(141) $(175) General & Administrative (non-GAAP) $991 8% $1,348 9% $1,229 8% Total Costs & Expenses (GAAP) $9,642 74% $11,305 73% $11,697 73% Less: Non-GAAP adjustments (2) $(743) $(839) $(880) Total Costs & Expenses (non- GAAP) $8,899 68% $10,466 68% $10,817 68% 12
  • 15. (1) Percentages based on revenues of $13,107 million in Q2 2013, $15,420 million in Q1 2014 and $15,955 million in Q2 2014. (2) Tax effect of SBC is calculated using tax-deductible portion of SBC and applying entity-specific tax rates. ($ in millions) Q2 2013 Q1 2014 Q2 2014 Income from Operations (GAAP) Operating margin (1) $3,465 26% $4,115 27% $4,258 27% Add: Stock-based compensation expense (SBC) $743 $839 $880 Income from Operations (non-GAAP) Operating margin (1) $4,208 32% $4,954 32% $5,138 32% Net Income (GAAP) $3,228 $3,452 $3,422 Add: Stock-based compensation expense (net of tax) (2) $583 $649 $685 Less: Net income (loss) from discontinued operations $(454) $198 $68 Net Income (non-GAAP) $3,357 $4,299 $4,175 Table 2 - Reconciliations of non-GAAP consolidated results of operations measures to the nearest comparable GAAP measures 13

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