Q2 2010 Summary
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Q2 2010
Summary
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• Revenue growth of 24% Y/Y and 1% Q/Q – oog e proper es revenue ncrease an
– Network revenues increased 23% Y/Y and decreased 1% Q/Q
– International revenues were $3.5 billion
• Operational Highlights – Strong financial metrics: revenue growth, profitability and cash flow
– Continuing to invest in our largest growth opportunities with the highest long-term ROI:
• Search Monetization
• Display
• Mobile
• Enterprise
2
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$7,000
Q2’10 Y/Y Growth = 24%Q2’10 Q/Q Growth = 1%
6 674 6,775 6,820
2,036 2,0632,044
$5,500
$6,000
$6,500
5,186 5,3675,541 5,701
5,509 5,523
5,945
i n m
i l l i o n s )
1,6861,655
1,6801,693
1,638
1,801
1,684
$4,000
$4,500
$5,000
( $
3,5303,811 3,693
3,956
4,439 4,4994,421
3,672 3,653$2,000
$2,500
$3,000
,
,
$500
$1,000
$1,500
3
100 182 189 197 178 186 188 209 258$0
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10
Other Google.com Network
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. . .
100%
5,186 5,367 5,541 5,701 5,509 5,523($ in millions)
6,6745,945 6,775 6,820
51% 52% 51% 50% 52% 52%
80%
90%
50%
60%
70%
30%
40%
10%
20%
4
0%
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10
US International
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$1,700
$1,800 40%
$1,300
$1,400
$1,500
$1,600
35%
1,721 1,7321,711
26.6%27.1%26.9% 26.9% 27.2%27.9%28.4%
.
26.4% 26.4%
$900
$1,000
$1,100
$1,200
25%
30%
n m i
l l i o n s )
1,5591,486 1,474 1,495 1,483 1,436 1,453
$400
$500
$600
$700
20%
( $ i
$0
$100
$200
$300
10%
15%
5
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10
TAC TAC as % of Advertising Revenues
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GAAP
($ in millions) Q2'09 Q1'10 Q2'10Cost of Revenues $2,108 $2,452 $2,467
Percent of revenues 38% 36% 36% Research & Development $708 $818 $898
Percent of revenues 13% 12% 13%
Sales & Marketing $469 $607 $629
General & Administrative $364 $410 $461Percent of revenues 7% 6% 7%
Total Costs & Expenses $3,649 $4,287 $4,455
Percent of revenues 66% 63% 65%
-
($ in millions) Q2'09 Q1'10 Q2'10Cost of Revenues $2,094 $2,446 $2,459
Percent of revenues 38% 36% 36%
Research & Development $526 $627 $696Percent of revenues 10% 9% 10%
Sales & Marketing $412 $553 $573Percent of revenues 7% 8% 8%
General & Administrative $324 $370 $418Percent of revenues 6% 6% 7%
Total Costs & Expenses $3,356 $3,996 $4,146
6
Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and
expenses to GAAP costs and expenses
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GAAP
($ in millions except per share amounts) Q2'09 Q1'10 Q2'10
Income from Operations 1,874$ 2,488$ 2,365$
Operating Margin 34% 37% 35%
Net Income 1,485$ 1,955$ 1,840$
EPS (diluted) 4.66$ 6.06$ 5.71$
Non-GAAPn m ons excep per s are amoun s
Income from Operations 2,167$ 2,779$ 2,674$
Operating Margin 39% 41% 39%
Note: Please refer to su ortin Table 2 for reconciliations of non-GAAP results of o erations
Net Income 1,708$ 2,181$ 2,079$
EPS (diluted) 5.36$ 6.76$ 6.45$
7
measures to the nearest comparable GAAP measures
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($ in millions) Q2'09 Q1'10 Q2'10
Net cash provided by
operating activities $1,609 $2,584 $2,085
Less purchases of propertyand e ui ment $139 $239 $476
Free cash flow (Non-GAAP) $1,470 $2,345 $1,609
8
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In Interest Income and Other (Expense), Net, we recognized net income of
• In Q2, we recognized $136M of interest income earned on our investments and $43M inrealized gains.
• In Q2, a greater portion of our option portfolio was in the money as foreign exchange ratesmoved farther away from the option strike prices in Q2. As a result, we expensed $100M
related to our FX cash flow hedging program.
• Excluding gains related to our FX cash flow hedging program, had foreign exchange ratesremained constant from Q1 2010 through Q2 2010, our revenue in Q2 would have been$176M higher. Excluding gains related to our FX cash flow hedging program, had foreignexchange rates remained constant from Q2 2009 through Q2 2010, our revenue in Q2 2010
wou ave een ower.
• In addition, our FX cash flow hedging program allowed us to recognize a benefit ofapproximately $79M to international revenue this quarter.
9
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($ in millions) Q2'09 Q1'10 Q2'10
n te tates $2,609 $3,196 $3,288
United Kingdom $715 $842 $770
Rest of the World $2,199 $2,737 $2,762
Total Revenues $5,523 $6,775 $6,820
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($ in millions) Q2'09 Q2'10 ($ in millions) Q1'09 Q1'10
UK revenues (GAAP) $715 $770 UK revenues (GAAP) $733 $842
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q2'09 rates
(gains)/losses n/a 5
a) f/x impact on Q1'10 revenues using Q1'09 rates
(gains)/losses n/a (72)
b) hedging gains (67) (19) b) hedging gains (82) (10)
UK revenues excluding f/x and hedging impact (Non-
GAAP) $648 $756
UK revenues excluding f/x and hedging impact (Non-
GAAP) $651 $760
Y/Y % (Non-GAAP) 17% Y/Y % (Non-GAAP) 17%
($ in millions) Q2'09 Q2'10 ($ in millions) Q1'09 Q1'10
ROW revenues (GAAP) $2,199 $2,762 ROW revenues (GAAP) $2,149 $2,737
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q2'09 rates(gains)/losses n/a (29)
a) f/x impact on Q1'10 revenues using Q1'09 rates(gains)/losses n/a (170)
b) hedging gains (57) (60) b) hedging gains (72) -
ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
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(Non-GAAP) $2,142 $2,673 (Non-GAAP) $2,077 $2,567
Y/Y % (Non-GAAP) 25% Y/Y % (Non-GAAP) 24%
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($ in millions) Q1'10 Q2'10 ($ in millions) Q4'09 Q1'10
UK Revenues (GAAP) $842 $770 UK Revenues (GAAP) $772 $842
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q1'10 rates
(gains)/losses n/a 47
a) f/x impact on Q1'10 revenues using Q4'09 rates
(gains)/losses n/a 20
b) hedging gains (10) (19) b) hedging gains (8) (10)
UK revenues excluding f/x and hedging impact (Non-
GAAP) $832 $798
UK revenues excluding f/x and hedging impact (Non-
GAAP) $764 $852
Q/Q % (Non-GAAP) -4% Q/Q % (Non-GAAP) 12%
($ in millions) Q1'10 Q2'10 ($ in millions) Q4'09 Q1'10ROW Revenues (GAAP) $2,737 $2,762 ROW Revenues (GAAP) $2,747 $2,737
exclude: exclude:
a) f/x impact on Q2'10 revenues using Q1'10 rates(gains)/losses n/a 129
a) f/x impact on Q1'10 revenues using Q4'09 rates(gains)/losses n/a 92
b) hedging gains - (60) b) hedging gains - -
ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,737 $2,831
ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,747 $2,829
12
Q/Q % (Non-GAAP) 3% Q/Q % (Non-GAAP) 3%
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Table 1 - Reconciliations of non-GAAP costs and expenses
($ in millions) Q2'09
As a % of
Revenues (1) Q1'10
As a % of
Revenues (1) Q2'10
As a % of
Revenues (1)
, , ,
Less: Stock-based compensation expense (14) (6) (8)
Cost of revenues (non-GAAP) 2,094$ 38% 2,446$ 36% 2,459$ 36%
Research and development (GAAP) 708$ 13% 818$ 12% 898$ 13%
Less: Stock-based compensation expense (182) (191) (202)
esearc an eve opmen non-
Sales and marketing (GAAP) 469$ 8% 607$ 9% 629$ 9%
Less: Stock-based compensation expense (57) (54) (56)
Sales and marketing (non-GAAP) 412$ 7% 553$ 8% 573$ 8%
Less: Stock-based compensation expense (40) (40) (43)
General and administrative (non-GAAP) 324$ 6% 370$ 6% 418$ 7%
Total costs and expenses (GAAP) 3,649$ 66% 4,287$ 63% 4,455$ 65%
Less: Stock-based compensation expense (293) (291) (309)
o a cos s an expenses non- 3,356 61% 3,996 59% 4,146 61%
(1) Percentages based on revenues of $5,523 million in Q2'09, $6,775 million in Q1'10 and $6,820 million in Q2'10.
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Table 2 - Reconciliations of non-GAAP results of operations
($ in millions except per share amounts) Q2'09
Operating
Margin (1) Q1'10
Operating
Margin (1) Q2'10
Operating
Margin (1)
Income from operations (GAAP) 1,874$ 34% 2,488$ 37% 2,365$ 35%Add: Stock-based compensation expense 293 291 309
Income from operations (non-GAAP) 2,167$ 39% 2,779$ 41% 2,674$ 39%
Net income (GAAP) 1,485$ 1,955$ 1,840$
Add: Stock-based compensation expense (net of tax) 223 226 239 Net income non-GAAP 1 708 2 181 2 079
Net income per share - diluted (GAAP) 4.66$ 6.06$ 5.71$
Net income per share - diluted (non-GAAP) 5.36$ 6.76$ 6.45$
Shares used in per share calculation - diluted 319 323 322
' ' ', , , , .
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Q2 2010
Summary