google earnings q3 2011

Q3 2011 Quarterly Earnings

Summary

2

Third Quarter 2011 Highlights

• Revenue growth of 33% Y/Y and 8% Q/Q – Google properties revenue increased 39% Y/Y and 8% Q/Q

– Network revenues increased 18% Y/Y and 4% Q/Q

– International revenues were $5.3 billion

• Operational Highlights – Strong financial metrics: revenue growth, profitability, cash flow

– Continuing to invest in three major areas of focus:

• Core ads business: search quality and monetization

• Businesses demonstrating high consumer success: YouTube, Android, Chrome

• New businesses where we’re investing to drive adoption and innovation: Social, Enterprise, Commerce, Local

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Quarterly Revenues ($

in m

illion

s)

178 186 188 209 300 258 254 273 269 310 385

3,693 3,653 3,956

4,421 4,439 4,499 4,833 5,672 5,879

6,232 6,740

1,638 1,684 1,801

2,044 2,036 2,063 2,199

2,495 2,427 2,484

2,595

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

Other Google.com Network

Q3’11 Y/Y Growth = 33% Q3’11 Q/Q Growth = 8%

5,509 5,523 5,945

6,674 6,775 6,820 7,286

8,440 8,575 9,026

9,720

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U.S. vs. International Revenues

48% 47% 47% 47% 47% 48% 48% 48% 47% 46% 45%

52% 53% 53% 53% 53% 52% 52% 52% 53% 54% 55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

US International

5,509 5,523 ($ in millions)

6,674 5,945 6,775 6,820 7,286 8,440 8,575 9,026 9,720

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1,436 1,453 1,559 1,721 1,711 1,732 1,805

2,069 2,038 2,110 2,210

26.9% 27.2% 27.1%26.6% 26.4% 26.4%

25.7%25.3%

24.5% 24.2%23.7%

15%

20%

25%

30%

$0

$500

$1,000

$1,500

$2,000

$2,500

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

TAC TAC as % of Advertising Revenues

Traffic Acquisition Costs ($

in m

illion

s)

6

Costs and Expenses

Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses

GAAP ($ in millions) Q3'10 Q2'11 Q3'11 Cost of Revenues $2,552 $3,172 $3,378

Percent of revenues 35% 35% 35%

Research & Development $994 $1,234 $1,404 Percent of revenues 14% 14% 14%

Sales & Marketing $661 $1,091 $1,204 Percent of revenues 9% 12% 12%

General & Administrative $532 $648 $676 Percent of revenues 7% 7% 7%

Total Costs & Expenses $4,739 $6,145 $6,662 Percent of revenues 65% 68% 69%

Non-GAAP ($ in millions) Q3'10 Q2'11 Q3'11 Cost of Revenues $2,544 $3,121 $3,306

Percent of revenues 35% 35% 34% Research & Development $750 $987 $1,093

Percent of revenues 10% 11% 11% Sales & Marketing $586 $1,017 $1,100

Percent of revenues 8% 11% 11% General & Administrative $479 $585 $592

Percent of revenues 7% 6% 6% Total Costs & Expenses $4,359 $5,710 $6,091

Percent of revenues 60% 63% 63%

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Profitability

Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures

GAAP ($ in millions except per share amounts) Q3'10 Q2'11 Q3'11 Income from Operations $ 2,547 $ 2,881 $ 3,058

Operating Margin 35% 32% 31%

Net Income $ 2,167 $ 2,505 $ 2,729

EPS (diluted) $ 6.72 $ 7.68 $ 8.33

Non-GAAP ($ in millions except per share amounts) Q3'10 Q2'11 Q3'11 Income from Operations $ 2,927 $ 3,316 $ 3,629

Operating Margin 40% 37% 37%

Net Income $ 2,462 $ 2,849 $ 3,184

EPS (diluted) $ 7.64 $ 8.74 $ 9.72

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Free Cash Flow

($ in millions) Q3'10 Q2'11 Q3'11 Net cash provided by operating activities $2,886 $3,519 $3,950

Less purchases of property and equipment ($757) ($917) ($680)

Free cash flow (non-GAAP) $2,129 $2,602 $3,270

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Overview of Q3 2011 OI&E and FX

In Interest and Other Income, Net, we recognized net income of $302M for Q3 • In Q3, we recognized $211M of interest income earned on our investments and $107M

in realized gains.

• We expensed $18M 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 2011 through Q3 2011, our revenue in Q3 2011 would have been $53M lower. Excluding gains related to our FX cash flow hedging program, had foreign exchange rates remained constant from Q3 2010 through Q3 2011, our revenue in Q3 2011 would have been $483M lower.

• In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $1M to international revenue this quarter.

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Revenues by Geography

($ in millions) Q3'10 Q2'11 Q3'11

United States $3,517 $4,155 $4,420

United Kingdom $840 $976 $1,047

Rest of the world $2,929 $3,895 $4,253

Total Revenues $7,286 $9,026 $9,720

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International Revenues Excluding Hedging and FX Impact (Y/Y)

($ in millions) Q3'10 Q3'11 ($ in millions) Q2'10 Q2'11 UK revenues (GAAP) $840 $1,047 UK revenues (GAAP) $770 $976

exclude: exclude:

a) f/x impact on Q3'11 revenues using Q3'10 rates (gains)/losses n/a (56)

a) f/x impact on Q2'11 revenues using Q2'10 rates (gains)/losses n/a (81)

b) hedging gains (11) - b) hedging gains (19) -

UK revenues excluding f/x and hedging impact (Non-GAAP) $829 $991

UK revenues excluding f/x and hedging impact (Non-GAAP) $751 $895

Y/Y % (Non-GAAP) 20% Y/Y % (Non-GAAP) 19%

($ in millions) Q3'10 Q3'11 ($ in millions) Q2'10 Q2'11 ROW revenues (GAAP) $2,929 $4,253 ROW revenues (GAAP) $2,762 $3,895 exclude: exclude:

a) f/x impact on Q3'11 revenues using Q3'10 rates (gains)/losses n/a (427)

a) f/x impact on Q2'11 revenues using Q2'10 rates (gains)/losses n/a (336)

b) hedging gains (78) (1) b) hedging gains (60)

(4)

ROW revenues excluding f/x and hedging impact (Non-GAAP) $2,851 $3,825

ROW revenues excluding f/x and hedging impact (Non-GAAP) $2,702 $3,555

Y/Y % (Non-GAAP) 34% Y/Y % (Non-GAAP) 32%

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International Revenues Excluding Hedging and FX Impact (Q/Q)

($ in millions) Q2'11 Q3'11 ($ in millions) Q1'11 Q2'11 UK revenues (GAAP) $976 $1,047 UK revenues (GAAP) $969 $976 exclude: exclude:

a) f/x impact on Q3'11 revenues using Q2'11 rates (gains)/losses n/a 1

a) f/x impact on Q2'11 revenues using Q1'11 rates (gains)/losses n/a (29)

b) hedging gains - - b) hedging gains

(4) - UK revenues excluding f/x and hedging impact (Non-GAAP) $976 $1,048

UK revenues excluding f/x and hedging impact (Non-GAAP) $965 $947

Q/Q % (Non-GAAP) 7% Q/Q % (Non-GAAP) -2%

($ in millions) Q2'11 Q3'11 ($ in millions) Q1'11 Q2'11 ROW revenues (GAAP) $3,895 $4,253 ROW revenues (GAAP) $3,601 $3,895 exclude: exclude:

a) f/x impact on Q3'11 revenues using Q2'11 rates (gains)/losses n/a (54)

a) f/x impact on Q2'11 revenues using Q1'11 rates (gains)/losses n/a (138)

b) hedging gains (4) (1) b) hedging gains (10)

(4) ROW revenues excluding f/x and hedging impact (Non-GAAP) $3,891 $4,198

ROW revenues excluding f/x and hedging impact (Non-GAAP) $3,591 $3,753

Q/Q % (Non-GAAP) 8% Q/Q % (Non-GAAP) 5%

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Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses

($ in millions) Q3'10 As a % of

Revenues (1) Q2'11 As a % of

Revenues (1) Q3'11 As a % of

Revenues (1)

Cost of revenues (GAAP) $ 2,552 35% $ 3,172 35% $ 3,378 35% Less: Stock-based compensation expense (8) (51) (72) Cost of revenues (non-GAAP) $ 2,544 35% $ 3,121 35% $ 3,306 34%

Research and development (GAAP) $ 994 14% $ 1,234 14% $ 1,404 14% Less: Stock-based compensation expense (244) (247) (311) Research and development (non-GAAP) $ 750 10% $ 987 11% $ 1,093 11%

Sales and marketing (GAAP) $ 661 9% $ 1,091 12% $ 1,204 12% Less: Stock-based compensation expense (75) (74) (104) Sales and marketing (non-GAAP) $ 586 8% $ 1,017 11% $ 1,100 11%

General and administrative (GAAP) $ 532 7% $ 648 7% $ 676 7% Less: Stock-based compensation expense (53) (63) (84) General and administrative (non-GAAP) $ 479 7% $ 585 6% $ 592 6%

Total costs and expenses (GAAP) $ 4,739 65% $ 6,145 68% $ 6,662 69% Less: Stock-based compensation expense (380) (435) (571)

Total costs and expenses (non-GAAP) $ 4,359 60% $ 5,710 63% $ 6,091 63%

(1) Percentages based on revenues of $7,286 million in Q3'10, $9,026 million in Q2'11 and $9,720 million in Q3'11.

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Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures

(In millions except per share amounts) Q3'10 Operating Margin (1) Q2'11

Operating Margin (1) Q3'11

Operating Margin (1)

Income from operations (GAAP) $ 2,547 35% $ 2,881 32% $ 3,058 31% Add: Stock-based compensation expense 380 435 571

Income from operations (non-GAAP) $ 2,927 40% $ 3,316 37% $ 3,629 37%

Net income (GAAP) $ 2,167 $ 2,505 $ 2,729 Add: Stock-based compensation expense (net of tax) 295 344 455

Net income (non-GAAP) $ 2,462 $ 2,849 $ 3,184

Net income per share - diluted (GAAP) $ 6.72 $ 7.68 $ 8.33 Net income per share - diluted (non-GAAP) $ 7.64 $ 8.74 $ 9.72 Shares used in per share calculation - diluted 322 326 327

(1) Percentages based on revenues of $7,286 million in Q3'10, $9,026 million in Q2'11 and $9,720 million in Q3'11.

Q3 2011 Quarterly Earnings

Summary