Q3 Earnings Conference Call Google Earnings Q3 2010

1. Q3 2010
Quarterly Earnings
Summary

2. Third Quarter 2010 Highlights
• Revenue growth of 23% Y/Y and 7% Q/Q
– Google properties revenue increased 22% Y/Y and 7% Q/Q
– Network revenues increased 22% Y/Y and 7% Q/Q
– International revenues were $3.8 billion
• Operational Highlights
– Strong financial metrics: revenue growth, profitability and cash flow
– Continuing to invest heavily in our growth agenda
• Investing in People -- to attract, retain, and reward the best talent
• Investing in Products -- to leverage computer science to solve big problems
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3. Quarterly Revenues
Q3’10 Y/Y Growth = 23%
Q3’10 Q/Q Growth = 7%
$7,500 7,286
$7,000 6,820
6,674 6,775
$6,500
5,945 2,199
$6,000
5,701 5,509 5,523 2,036 2,063
$5,500 5,186 5,367 5,541 2,044
$5,000 1,801
($ in millions)
1,693
1,680 1,638 1,684
$4,500 1,655
1,686
$4,000
$3,500
$3,000
$4,833
$2,500 4,421 4,439 4,499
3,811 3,653 3,956
$2,000 3,530 3,672 3,693
3,400
$1,500
$1,000
$500
100 182 189 197 178 186 188 209 300 258 254
$0
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
3 Other Google.com Network

4. U.S. vs. International Revenues
($ in millions)
5,186 5,367 5,541 5,701 5,509 5,523 5,945 6,674 6,775 6,820 7,286
100%
90%
80%
51% 52% 51% 50% 52% 53% 53% 53% 53% 52% 52%
70%
60%
50%
40%
30%
49% 48% 49% 50% 48% 47% 47% 47% 47% 48% 48%
20%
10%
0%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
US International
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5. Traffic Acquisition Costs
$1,900 40%
$1,800
$1,700
$1,600 35%
$1,500
$1,400
$1,300 29.2% 28.4% 30%
$1,200 27.9%
26.9% 26.9% 27.2% 27.1% 26.6% 26.4% 26.4%
($ in millions)
$1,100 25.7%
$1,000
25%
$900 1,805
1,721 1,711 1,732
$800 1,559
1,486 1,474 1,495 1,483 1,436 1,453
$700
$600 20%
$500
$400
$300 15%
$200
$100
$0 10%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
TAC TAC as % of Advertising Revenues
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6. Costs and Expenses
GAAP
($ in millions) Q3'09 Q2'10 Q3'10
Cost of Revenues $2,226 $2,467 $2,552
Percent of revenues 37% 36% 35%
Research & Development $758 $898 $994
Percent of revenues 13% 13% 14%
Sales & Marketing $498 $629 $661
Percent of revenues 8% 9% 9%
General & Administrative $389 $461 $532
Percent of revenues 7% 7% 7%
Total Costs & Expenses $3,871 $4,455 $4,739
Percent of revenues 65% 65% 65%
Non-GAAP
($ in millions) Q3'09 Q2'10 Q3'10
Cost of Revenues $2,211 $2,459 $2,544
Percent of revenues 37% 36% 35%
Research & Development $562 $696 $750
Percent of revenues 10% 10% 10%
Sales & Marketing $436 $573 $586
Percent of revenues 7% 8% 8%
General & Administrative $344 $418 $479
Percent of revenues 6% 7% 7%
Total Costs & Expenses $3,553 $4,146 $4,359
Percent of revenues 60% 61% 60%
Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and
expenses to GAAP costs and expenses
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7. Profitability
GAAP
($ in millions except per share amounts) Q3'09 Q2'10 Q3'10
Income from Operations $ 2,074 $ 2,365 $ 2,547
Operating Margin 35% 35% 35%
Net Income $ 1,639 $ 1,840 $ 2,167
EPS (diluted) $ 5.13 $ 5.71 $ 6.72
Non-GAAP
($ in millions except per share amounts) Q3'09 Q2'10 Q3'10
Income from Operations $ 2,392 $ 2,674 $ 2,927
Operating Margin 40% 39% 40%
Net Income $ 1,884 $ 2,079 $ 2,462
EPS (diluted) $ 5.89 $ 6.45 $ 7.64
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
($ in millions) Q3'09 Q2'10 Q3'10
Net cash provided by
operating activities $2,726 $2,085 $2,886
Less purchases of property
and equipment ($186) ($476) ($757)
Free cash flow (non-GAAP) $2,540 $1,609 $2,129
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9. Overview of Q3 2010 OI&E and FX
In Interest and Other Income (Expense), Net, we recognized net income of
$167M for Q3
• In Q3, we recognized $172M of interest income earned on our investments and $62M in
realized gains.
• We expensed $60M related to our FX cash flow hedging program.
• Excluding gains related to our FX cash flow hedging program, had foreign exchange rates
remained constant from Q2 2010 through Q3 2010, our revenue in Q3 2010 would have
been $9M lower. Excluding gains related to our FX cash flow hedging program, had foreign
exchange rates remained constant from Q3 2009 through Q3 2010, our revenue in Q3 2010
would have been $169M higher.
• In addition, our FX cash flow hedging program allowed us to recognize a benefit of
approximately $89M to international revenue this quarter.
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10. Revenues by Geography
($ in millions) Q3'09 Q2'10 Q3'10
United States $2,802 $3,288 $3,517
United Kingdom $765 $770 $840
Rest of the World $2,378 $2,762 $2,929
Total Revenues $5,945 $6,820 $7,286
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11. International Revenues Excluding Hedging and FX Impact (Y/Y)
($ in millions) Q3'09 Q3'10 ($ in millions) Q2'09 Q2'10
UK revenues (GAAP) $765 $840 UK revenues (GAAP) $715 $770
exclude: exclude:
a) f/x impact on Q3'10 revenues using Q3'09 rates a) f/x impact on Q2'10 revenues using Q2'09 rates
(gains)/losses n/a 50 (gains)/losses n/a 5
b) hedging gains (25) (11) b) hedging gains (67) (19)
UK revenues excluding f/x and hedging impact (Non- UK revenues excluding f/x and hedging impact (Non-
GAAP) $740 $879 GAAP) $648 $756
Y/Y % (Non-GAAP) 19% Y/Y % (Non-GAAP) 17%
($ in millions) Q3'09 Q3'10 ($ in millions) Q2'09 Q2'10
ROW revenues (GAAP) $2,378 $2,929 ROW revenues (GAAP) $2,199 $2,762
exclude: exclude:
a) f/x impact on Q3'10 revenues using Q3'09 rates a) f/x impact on Q2'10 revenues using Q2'09 rates
(gains)/losses n/a 119 (gains)/losses n/a (29)
b) hedging gains (14) (78) b) hedging gains (57) (60)
ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,364 $2,970 (Non-GAAP) $2,142 $2,673
Y/Y % (Non-GAAP) 26% Y/Y % (Non-GAAP) 25%
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12. International Revenues Excluding Hedging and FX Impact (Q/Q)
($ in millions) Q2'10 Q3'10 ($ in millions) Q1'10 Q2'10
UK Revenues (GAAP) $770 $840 UK Revenues (GAAP) $842 $770
exclude: exclude:
a) f/x impact on Q3'10 revenues using Q2'10 rates a) f/x impact on Q2'10 revenues using Q1'10 rates
(gains)/losses n/a (24) (gains)/losses n/a 47
b) hedging gains (19) (11) b) hedging gains (10) (19)
UK revenues excluding f/x and hedging impact (Non- UK revenues excluding f/x and hedging impact (Non-
GAAP) $751 $805 GAAP) $832 $798
Q/Q % (Non-GAAP) 7% Q/Q % (Non-GAAP) -4%
($ in millions) Q2'10 Q3'10 ($ in millions) Q1'10 Q2'10
ROW Revenues (GAAP) $2,762 $2,929 ROW Revenues (GAAP) $2,737 $2,762
exclude: exclude:
a) f/x impact on Q3'10 revenues using Q2'10 rates a) f/x impact on Q2'10 revenues using Q1'10 rates
(gains)/losses n/a 15 (gains)/losses n/a 129
b) hedging gains (60) (78) b) hedging gains - (60)
ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,702 $2,866 (Non-GAAP) $2,737 $2,831
Q/Q % (Non-GAAP) 6% Q/Q % (Non-GAAP) 3%
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13. Table 1 - Reconciliations of non-GAAP costs and expenses
to GAAP costs and expenses
As a % of As a % of As a % of
($ in millions) Q3'09 Revenues (1) Q2'10 Revenues (1) Q3'10 Revenues (1)
Cost of revenues (GAAP) $ 2,226 37% $ 2,467 36% $ 2,552 35%
Less: Stock-based compensation expense (15) (8) (8)
Cost of revenues (non-GAAP) $ 2,211 37% $ 2,459 36% $ 2,544 35%
Research and development (GAAP) $ 758 13% $ 898 13% $ 994 14%
Less: Stock-based compensation expense (196) (202) (244)
Research and development (non-GAAP) $ 562 10% $ 696 10% $ 750 10%
Sales and marketing (GAAP) $ 498 8% $ 629 9% $ 661 9%
Less: Stock-based compensation expense (62) (56) (75)
Sales and marketing (non-GAAP) $ 436 7% $ 573 8% $ 586 8%
General and administrative (GAAP) $ 389 7% $ 461 7% $ 532 7%
Less: Stock-based compensation expense (45) (43) (53)
General and administrative (non-GAAP) $ 344 6% $ 418 7% $ 479 7%
Total costs and expenses (GAAP) $ 3,871 65% $ 4,455 65% $ 4,739 65%
Less: Stock-based compensation expense (318) (309) (380)
Total costs and expenses (non-GAAP) $ 3,553 60% $ 4,146 61% $ 4,359 60%
(1) Percentages based on revenues of $5,945 million in Q3'09, $6,820 million in Q2'10 and $7,286 million in Q3'10.
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14. Table 2 - Reconciliations of non-GAAP results of operations
measures to the nearest comparable GAAP measures
Operating Operating Operating
($ in millions except per share amounts) Q3'09 Margin (1) Q2'10 Margin (1) Q3'10 Margin (1)
Income from operations (GAAP) $ 2,074 35% $ 2,365 35% $ 2,547 35%
Add: Stock-based compensation expense 318 309 380
Income from operations (non-GAAP) $ 2,392 40% $ 2,674 39% $ 2,927 40%
Net income (GAAP) $ 1,639 $ 1,840 $ 2,167
Add: Stock-based compensation expense (net of tax) 245 239 295
Net income (non-GAAP) $ 1,884 $ 2,079 $ 2,462
Net income per share - diluted (GAAP) $ 5.13 $ 5.71 $ 6.72
Net income per share - diluted (non-GAAP) $ 5.89 $ 6.45 $ 7.64
Shares used in per share calculation - diluted 320 322 322
(1) Percentages based on revenues of $5,945 million in Q3'09, $6,820 million in Q2'10 and $7,286 million in Q3'10.
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15. Q3 2010
Quarterly Earnings
Summary