Google reported strong financial results for Q4 2006 with revenue growth of 67% year-over-year and 19% quarter-over-quarter. International revenues grew 20% sequentially driven by growth in Germany and France. Google continued to invest heavily in employees, infrastructure, and strategic partnerships while maintaining operating margins over 30%. Looking ahead, Google will continue focusing on international expansion, innovation, and strengthening its ecosystem to drive further growth.

1. Q4 2006 Earnings
Conference Call

2. Fourth Quarter 2006 Highlights
• Revenue growth of 67% Y/Y and 19% Q/Q
– Strong holiday season led to healthy traffic growth
– International revenues grew 20% sequentially; particular strength in Germany and
France
– UK (15% of total revenue) demonstrated typical seasonal patterns, including
relative softness in the travel and finance verticals
• Checkout acceptance and adoption exceeded expectations
• Signed key mobile partnerships – Apple, Samsung, China Mobile
• Closed acquisition of YouTube
• Continued to invest in employees and infrastructure
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3. Quarterly Revenue
$3,500 Q4’06 Y/Y Growth = 67%
Q4’06 Q/Q Growth = 19% 3,205
$3,000
2,690
$ in millions
2,456 1,198
$2,500
2,254
1,037
$2,000 1,919
997
928
1,578
$1,500 1,384 799
1,257
675
$1,000 630 1,977
584
1,432 1,626
1,297
$500 1,098
885
657 737
$0
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06
Google.com Network Licensing and Other
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4. U.S. vs. International Revenue
$3,500
Q4’06 Domestic = 56% of total revenue
Q4’06 International = 44% of total revenue 3,205
$3,000
2,690
$ in millions
$2,500
2,456
2,254
44%
$2,000 1,919 44%
42%
1,578 42%
$1,500 1,384 38%
1,257
39%
$1,000 39%
39%
$500
61% 61% 61% 62% 58% 58% 56% 56%
$0
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06
US International
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5. Traffic Acquisition Costs
976
$1,000 40%
37.2%
36.1%
$900
34.0% 825
33.2% 723 785 35%
$800
$700 32.5% 32.3%
629 31.0% 30%
30.7%
$ in millions
$600
530
494
$500 462 25%
$400
20%
$300
$200
15%
$100
$0 10%
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06
TAC TAC as % of Advertising Revenues
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6. Costs and Expenses
GAAP
$Millions Q4'05 Q3'06 Q4'06
Costs of Revenues $777.0 $1,048.7 $1,283.1
Percent of revenues 40.5% 39.0% 40.0%
Research & Development $189.9 $312.6 $386.8
Percent of revenues 9.9% 11.6% 12.1%
Sales & Marketing $162.6 $207.0 $255.2
Percent of revenues 8.5% 7.7% 8.0%
General & Administrative* $219.9 $190.0 $219.8
Percent of revenues 11.5% 7.1% 6.9%
Total Costs & Expenses $1,349.4 $1,758.3 $2,144.9
Percent of revenues 70.4% 65.4% 67.0%
Non-GAAP
$Millions Q4'05 Q3'06 Q4'06
Costs of Revenues $775.3 $1,046.6 $1,272.2
Percent of revenues 40.4% 38.9% 39.7%
Research & Development $157.1 $250.9 $304.7
Percent of revenues 8.2% 9.3% 9.5%
Sales & Marketing $154.7 $192.3 $240.7
Percent of revenues 8.1% 7.1% 7.5%
General & Administrative $114.1 $168.7 $192.9
Percent of revenues 5.9% 6.3% 6.0%
Total Costs & Expenses $1,201.2 $1,658.5 $2,010.5
Percent of revenues 62.6% 61.6% 62.7%
* Q405 includes $90M contribution to Google Foundation
Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to
GAAP costs and expenses
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7. Profitability
GAAP
$Millions Q4'05 Q3'06 Q4'06
Income from Operations $569.6 $931.3 $1,060.6
Operating Margin 29.7% 34.6% 33.1%
Net Income $372.2 $733.4 $1,030.7
EPS (diluted) $1.22 $2.36 $3.29
Non-GAAP
$Millions Q4'05 Q3'06 Q4'06
Income from Operations $717.8 $1,031.2 $1,195.0
Operating Margin 37.4% 38.3% 37.3%
Net Income $469.5 $812.3 $997.3
EPS (diluted) $1.54 $2.62 $3.18
Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations
measures to the nearest comparable GAAP measures
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8. Free Cash Flow
$Millions Q4'05 Q3'06 Q4'06
Net cash provided by
operating activities $658.4 $1,004.3 $910.8
Less purchases of property
and equipment $245.8 $492.2 $366.6
Free cash flow (Non-GAAP) $412.6 $512.1 $544.2
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9. Summary
• Google’s continued excellence and market leadership in core search
and ads drove strong results in Q4
• We continue to invest in our international operations, which
represented an increasing portion of total revenues on a year-over-
year basis
• Partnerships remain a key strategic initiative
• Innovation for the user and strengthening the Google ecosystem are
overriding goals
• Investments in infrastructure and people are a competitive advantage
and key factor in our success; we continue to invest aggressively for
the long term
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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 Q4'05 Revenues (1) Q3'06 Revenues (1) Q4'06 Revenues (1)
Cost of Revenues (GAAP) $ 777.0 40.5% $ 1,048.7 39.0% $ 1,283.1 40.0%
Less: Stock-based compensation (1.7) - (2.1) - (10.9) -
Cost of Revenues (non-GAAP) $ 775.3 40.4% $ 1,046.6 38.9% $ 1,272.2 39.7%
Research and development (GAAP) $ 189.9 9.9% $ 312.6 11.6% $ 386.8 12.1%
Less: Stock-based compensation (32.8) - (61.7) - (82.1) -
Research and development (non-GAAP) $ 157.1 8.2% $ 250.9 9.3% $ 304.7 9.5%
Sales and marketing (GAAP) $ 162.6 8.5% $ 207.0 7.7% $ 255.2 8.0%
Less: Stock-based compensation (7.9) - (14.7) - (14.5) -
Sales and marketing (non-GAAP) $ 154.7 8.1% $ 192.3 7.1% $ 240.7 7.5%
General and administrative (GAAP) $ 219.9 11.5% $ 190.0 7.1% $ 219.8 6.9%
Less: Google Foundation Contribution (90.0) - - - - -
Less: Stock-based compensation (15.8) - (21.3) - (26.9) -
General and administrative (non-GAAP) $ 114.1 5.9% $ 168.7 6.3% $ 192.9 6.0%
Total costs and expenses (GAAP) $ 1,349.4 70.4% $ 1,758.3 65.4% $ 2,144.9 67.0%
Less: Google Foundation Contribution (90.0) - - - - -
Less: Stock-based compensation (58.2) - (99.8) - (134.4) -
Total costs and expenses (non-GAAP) $ 1,201.2 62.6% $ 1,658.5 61.6% $ 2,010.5 62.7%
(1) Percentages based on GAAP revenues of $1,919 million in Q4 '05, $2,690 million in Q3 '06 and $3,205 million in Q4 '06
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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
$Millions except per share amounts Q4'05 Revenues (1) Q3'06 Revenues (1) Q4'06 Revenues (1)
Income from operations (GAAP) $ 569.6 29.7% $ 931.3 34.6% $ 1,060.6 33.1%
Add: Stock-based compensation 58.2 - 99.9 - 134.4 -
Add: Google Foundation contribution 90.0 - - - - -
Income from operations (non-GAAP) $ 717.8 37.4% $ 1,031.2 38.3% $ 1,195.0 37.3%
Net income (GAAP) $ 372.2 19.4% $ 733.4 27.3% $ 1,030.7 32.2%
Add: Stock-based compensation (net of tax) 44.3 - 78.9 - 99.8 -
Add: Google Foundation contribution (net of tax) 53.0
Less: Advanced Pricing Agreement and R&D credit - - - - (133.2) -
Net income (non-GAAP) $ 469.5 24.5% $ 812.3 30.2% $ 997.3 31.1%
Net income per share - diluted (GAAP) $1.22 $2.36 $3.29
Net income per share - diluted (non-GAAP) $1.54 $2.62 $3.18
Shares used in per share calculation - diluted 304 311 313
(1) Percentages based on GAAP revenues of $1,919 million in Q4 '05, $2,690 million in Q3 '06 and $3,205 million in Q4 '06
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12. Q4 2006 Earnings
Conference Call