2007 Q4 Google Earnings Slides

1. Q4 2007
Quarterly Earnings
Summary

2. Fourth Quarter 2007 Highlights
• Revenue growth of 51% Y/Y and 14% Q/Q
– Google properties revenue growth of 58% Y/Y and 14% Q/Q, driven by strength in
the holiday retail season
– Network revenues increased 37% Y/Y and 12% Q/Q
– Strong international performance, with $2.3 billion in Q4 international revenue
• Executing on Search.Ads.Apps Strategy
– Infrastructure investments in search leading to improved quality
worldwide
– Giving advertisers more control and improving ROI
g p g
– Improving Apps performance and ensuring data portability
– Significant strides in mobile with the launch of Android
• Ongoing focus on growth and profitability
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3. Quarterly Revenue
4,827
Q4’07 Y/Y Growth = 51%
Q4’07 Q/Q Growth = 14%
$4,500 4,231
3,872
$4,000 1,636
3,664
$ in millions
$3,500 3,205 1,455
m
1,352
$3,000 1,345
2,690
2,456 1,198
$2,500 2,254
1,037
1,919
1 919
$2,000
997
1,578 928
1,384
3,122
1,257
$1,500 799
2,735
2,486
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 Q2'07 Q3'07 Q4'07
Google.com Network Licensing and Other
3

4. U.S. vs.
U S vs International Revenue
4,827
$4,500 4,231
3,872
$4,000
3,664
$ in millions
48%
$3,500 3,205 48%
48%
m
$3,000
2,690 47%
2,456 44%
$2,500 2,254
1,919 44%
$2,000 42%
1,578 42%
1,384 38%
1,257
$1,500
39% 52%
39% 52%
39%
$1,000
, 53% 52%
56%
58% 56%
62% 58%
61%
61%
$500
61%
$0
Q1 05
Q1'05 Q2 05
Q2'05 Q3 05
Q3'05 Q4 05
Q4'05 Q1 06
Q1'06 Q2 06
Q2'06 Q3 06
Q3'06 Q4 06
Q4'06 Q1 07
Q1'07 Q2 07
Q2'07 Q3 07
Q3'07 Q4 07
Q4'07
US International
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5. Traffic Acquisition Costs
1,440
40%
$1,400 37.2%
36.1%
$1,300 1,221
34.0%
1,125 1,148 35%
$1,200 33.2%32.5%
32.3%
$1,100
976
$,
$1,000
30%
31.0% 30.7% 31.0%
$900 825 29.9%
29.1% 30.3%
$ in millions
785
$800
723
25%
$700
629
n
$600
530
494
462
$500 20%
$400
$300
15%
$200
$100
$0 10%
Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07
TAC TAC as % of Advertising Revenues
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6. Costs and Expenses
GAAP
$Millions Q4'06 Q3'07 Q4'07
Cost of Revenues
C f $1,283 $1,663 $1,956
Percent of revenues 40% 39% 41%
Research & Development $387 $549 $631
Percent of revenues 12% 13% 13%
Sales & Marketing $255 $381 $422
Percent of revenues 8% 9% 9%
General & Administrative $220 $321 $377
Percent of revenues 7% 8% 8%
Total Costs & Expenses $2,145 $2,914 $3,386
Percent of revenues 67% 69% 71%
Non GAAP
Non-GAAP
$Millions Q4'06 Q3'07 Q4'07
Cost of Revenues $1,272 $1,659 $1,950
Percent of revenues 40% 39% 40%
Research & Development $305 $418 $470
Percent of revenues 10% 10% 10%
Sales & Marketing $241 $351 $384
Percent of revenues 7% 8% 8%
General & Administrative $193 $288 $337
Percent of revenues 6% 7% 7%
Total Costs & Expenses $2,011 $2,716 $3,141
Percent of revenues 63% 64% 65%
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 Q4'06 Q3'07 Q4'07
Income from Operations $1,061 $1,318 $1,441
Operating Margin 33% 31% 30%
Net Income $1,031 $1,070 $1,206
EPS (diluted) $3.29 $3.38 $3.79
Non-GAAP
$Millions Q4'06 Q3'07 Q4'07
Income from Operations $1,195 $1,516 $1,686
Operating Margin 37% 36% 35%
Net Income $997
$ $1,237
$ $1,409
$
EPS (diluted) $3.18 $3.91 $4.43
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
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8. Free Cash Flow
$Millions Q4'06 Q3'07 Q4'07
Net cash provided by
operating activities $911 $1,633 $1,693
Less purchases of property
and equipment
qp ($
($367)
) ($
($553)
) ($
($678)
)
Free cash flow (Non-GAAP) $544 $1,080 $1,015
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9. 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 Q4'06 Q3'07 Q4'07
Cost of Revenues (GAAP) $ 1,283
1 283 40% $ 1,663
1 663 39% $ 1,956
1 956 41%
Less: Stock-based compensation (11) - (4) - (6) -
Cost of Revenues (non-GAAP) $ 1,272 40% $ 1,659 39% $ 1,950 40%
Research and development (GAAP) $ 387 12% $ 549 13% $ 631 13%
Less: Stock-based compensation (82) - (131) - (161) -
Research and development (non-GAAP)
(non GAAP) $ 305 10% $ 418 10% $ 470 10%
Sales and marketing (GAAP) $ 255 8% $ 381 9% $ 422 9%
Less: Stock-based compensation (14) - (30) - (38) -
Sales and marketing (non-GAAP) $ 241 7% $ 351 8% $ 384 8%
General and administrative (GAAP) $ 220 7% $ 321 8% $ 377 8%
Less: Stock-based compensation (27) - (33) - (40) -
General and administrative (non-GAAP) $ 193 6% $ 288 7% $ 337 7%
Total costs and expenses (GAAP) $ 2,145 67% $ 2,914 69% $ 3,386 71%
Less: Stock-based compensation (134) - (198) - (245) -
Total
T t l costs and expenses (non-GAAP)
t d ( GAAP) $ 2,011
2 011 63% $ 2,716
2 716 64% $ 3,141
3 141 65%
(1) Percentages based on GAAP revenues of $3,205 million in Q4 '06, $4,231 million in Q3 '07 and $4,827 million in Q4 '07
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10. Table 2 - Reconciliations of non-GAAP results of operations
measures to the nearest comparable GAAP measures
Operating Operating Operating
Margin Margin Margin
(1) (1) (1)
Figures in millions except per share amounts Q4'06 Q3'07 Q4'07
Income from operations (GAAP) $ 1,061 33% $ 1,318 31% $ 1,441 30%
Add: Stock-based compensation 134 - 198 245
Income from operations (non GAAP)
(non-GAAP) $ 1,195
1 195 37% $ 1,516
1 516 36% $ 1,686
1 686 35%
Net income (GAAP) $ 1,031 $ 1,070 $ 1,206
Add: Stock-based compensation (net of tax) 99 167 203
Less: Advanced Pricing Agreement and R&D credit (133) - -
Net income (non-GAAP) $ 997 $ 1,237 $ 1,409
Net income per share - diluted (GAAP) $3.29 $3.38 $3.79
Net income per share - diluted (non-GAAP) $3.18 $3.91 $4.43
Shares used in per share calculation - diluted 313 317 318
(1) Percentages based on GAAP revenues of $3,205 million in Q4 '06, $4,231 million in Q3 '07 and $4,827 million in Q4 '07
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11. Q4 2007
Quarterly Earnings
Summary