Q2 2011 Quarterly Earnings
Summary
2
Second Quarter 2011 Highlights
• Revenue growth of 32% Y/Y and 5% Q/Q– Google properties revenue increased 39% Y/Y and 6% Q/Q
– Network revenues increased 20% Y/Y and 2% Q/Q
– International revenues were $4.9 billion
• Operational Highlights– Strong financial metrics: revenue growth, profitability, cash flow
– Continuing to invest in three major areas of focus:
• Core ads business: search quality and monetization
• Businesses demonstrating high consumer success: YouTube, Android, Chrome
• New businesses where we’re investing to drive adoption and innovation: Social, Commerce, Local
3
Quarterly Revenues($
in m
illion
s)
178 186 188 209 300 258 254 273 269 310
3,693 3,653 3,956
4,421 4,439 4,499 4,833 5,672 5,879
6,232
1,638 1,684 1,801
2,044 2,036 2,063 2,199
2,495 2,427 2,484
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
Other Google.com Network
Q2’11 Y/Y Growth = 32%Q2’11 Q/Q Growth = 5%
5,509 5,5235,945
6,674 6,775 6,8207,286
8,440 8,5759,026
4
U.S. vs. International Revenues
48% 47% 47% 47% 47% 48% 48% 48% 47% 46%
52% 53% 53% 53% 53% 52% 52% 52% 53% 54%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
US International
5,509 5,523($ in millions)
6,6745,945 6,775 6,820 7,286 8,440 8,575 9,026
5
1,436 1,453 1,559
1,721 1,711 1,732 1,805 2,069 2,038
2,110
26.9% 27.2% 27.1% 26.6% 26.4% 26.4%25.7% 25.3%
24.5% 24.2%
10%
15%
20%
25%
30%
35%
40%
$0$100$200$300$400$500$600$700$800$900
$1,000$1,100$1,200$1,300$1,400$1,500$1,600$1,700$1,800$1,900$2,000$2,100$2,200
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
TAC TAC as % of Advertising Revenues
Traffic Acquisition Costs($
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) Q2'10 Q1'11 Q2'11Cost of Revenues $2,467 $2,936 $3,172
Percent of revenues 36% 34% 35%
Research & Development $898 $1,226 $1,234Percent of revenues 13% 14% 14%
Sales & Marketing $629 $1,026 $1,091Percent of revenues 9% 12% 12%
General & Administrative $461 $591 $648Percent of revenues 7% 7% 7%
Charge Related to Potential Resolution of Department of Justice Investigation $0 $500 $0Percent of revenues 0% 6% 0%
Total Costs & Expenses $4,455 $6,279 $6,145Percent of revenues 65% 73% 68%
Non-GAAP($ in millions) Q2'10 Q1'11 Q2'11Cost of Revenues $2,459 $2,887 $3,121
Percent of revenues 36% 34% 35%
Research & Development $696 $989 $987Percent of revenues 10% 12% 11%
Sales & Marketing $573 $948 $1,017Percent of revenues 8% 11% 11%
General & Administrative $418 $523 $585Percent of revenues 7% 6% 6%
Charge Related to Potential Resolution of Department of Justice Investigation $0 $0 $0Percent of revenues 0% 0% 0%
Total Costs & Expenses $4,146 $5,347 $5,710Percent of revenues 61% 62% 63%
7
Profitability
Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures
GAAP($ in millions except per share amounts) Q2'10 Q1'11 Q2'11
Income from Operations $ 2,365 $ 2,296 $ 2,881
Operating Margin 35% 27% 32%
Net Income $ 1,840 $ 1,798 $ 2,505
EPS (diluted) $ 5.71 $ 5.51 $ 7.68
Non-GAAP($ in millions except per share amounts) Q2'10 Q1'11 Q2'11
Income from Operations $ 2,674 $ 3,228 $ 3,316
Operating Margin 39% 38% 37%
Net Income $ 2,079 $ 2,638 $ 2,849
EPS (diluted) $ 6.45 $ 8.08 $ 8.74
8
Free Cash Flow
($ in millions) Q2'10 Q1'11 Q2'11
Net cash provided by operating activities $2,085 $3,172 $3,519
Less purchases of property and equipment ($476) ($890) ($917)
Free cash flow (non-GAAP) $1,609 $2,282 $2,602
9
Overview of Q2 2011 OI&E and FX
In Interest and Other Income, Net, we recognized net income of $204M for Q2
• In Q2, we recognized $212M of interest income earned on our investments and $75M in realized gains.
• We expensed $58M 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 Q1 2011 through Q2 2011, our revenue in Q2 2011 would have been $167M lower. Excluding gains related to our FX cash flow hedging program, had foreign exchange rates remained constant from Q2 2010 through Q2 2011, our revenue in Q2 2011 would have been $417M lower.
• In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $4M to international revenue this quarter.
10
Revenues by Geography
($ in millions) Q2'10 Q1'11 Q2'11
United States $3,288 $4,005 $4,155
United Kingdom $770 $969 $976
Rest of the world $2,762 $3,601 $3,895
Total Revenues $6,820 $8,575 $9,026
11
International Revenues Excluding Hedging and FX Impact (Y/Y)
($ in millions) Q2'10 Q2'11 ($ in millions) Q1'10 Q1'11
UK revenues (GAAP) $770 $976 UK revenues (GAAP) $842 $969
exclude: exclude:
a) f/x impact on Q2'11 revenues using Q2'10 rates (gains)/losses n/a (81) a) f/x impact on Q1'11 revenues using Q1'10 rates (gains)/losses n/a 5
b) hedging gains (19) - b) hedging gains (10) (4)
UK revenues excluding f/x and hedging impact (Non-GAAP) $751 $895 UK revenues excluding f/x and hedging impact (Non-GAAP) $832 $970
Y/Y % (Non-GAAP) 19% Y/Y % (Non-GAAP) 17%
($ in millions) Q2'10 Q2'11 ($ in millions) Q1'10 Q1'11
ROW revenues (GAAP) $2,762 $3,895 ROW revenues (GAAP) $2,737 $3,601
exclude: exclude:
a) f/x impact on Q2'11 revenues using Q2'10 rates (gains)/losses n/a (336) a) f/x impact on Q1'11 revenues using Q1'10 rates (gains)/losses n/a (28)
b) hedging gains (60) (4) b) hedging gains - (10)
ROW revenues excluding f/x and hedging impact (Non-GAAP) $2,702 $3,555 ROW revenues excluding f/x and hedging impact (Non-GAAP) $2,737 $3,563
Y/Y % (Non-GAAP) 32% Y/Y % (Non-GAAP) 30%
12
International Revenues Excluding Hedging and FX Impact (Q/Q)
($ in millions) Q1'11 Q2'11 ($ in millions) Q4'10 Q1'11
UK revenues (GAAP) $969 $976 UK revenues (GAAP) $878 $969
exclude: exclude:
a) f/x impact on Q2'11 revenues using Q1'11 rates (gains)/losses n/a (29) a) f/x impact on Q1'11 revenues using Q4'10 rates (gains)/losses n/a 1
b) hedging gains (4) - b) hedging gains (2) (4)
UK revenues excluding f/x and hedging impact (Non-GAAP) $965 $947 UK revenues excluding f/x and hedging impact (Non-GAAP) $876 $966
Q/Q % (Non-GAAP) -2% Q/Q % (Non-GAAP) 10%
($ in millions) Q1'11 Q2'11 ($ in millions) Q4'10 Q1'11
ROW revenues (GAAP) $3,601 $3,895 ROW revenues (GAAP) $3,507 $3,601
exclude: exclude:
a) f/x impact on Q2'11 revenues using Q1'11 rates (gains)/losses n/a (138) a) f/x impact on Q1'11 revenues using Q4'10 rates (gains)/losses n/a (20)
b) hedging gains (10) (4) b) hedging gains (23) (10)
ROW revenues excluding f/x and hedging impact (Non-GAAP) $3,591 $3,753 ROW revenues excluding f/x and hedging impact (Non-GAAP) $3,484 $3,571
Q/Q % (Non-GAAP) 5% Q/Q % (Non-GAAP) 2%
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Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses
($ in millions) Q2'10As a % of
Revenues (1) Q1'11As a % of
Revenues (1) Q2'11As a % of
Revenues (1)
Cost of revenues (GAAP) $ 2,467 36% $ 2,936 34% $ 3,172 35%Less: Stock-based compensation expense (8) (49) (51)
Cost of revenues (non-GAAP) $ 2,459 36% $ 2,887 34% $ 3,121 35%
Research and development (GAAP) $ 898 13% $ 1,226 14% $ 1,234 14%Less: Stock-based compensation expense (202) (237) (247)
Research and development (non-GAAP) $ 696 10% $ 989 12% $ 987 11%
Sales and marketing (GAAP) $ 629 9% $ 1,026 12% $ 1,091 12%Less: Stock-based compensation expense (56) (78) (74)
Sales and marketing (non-GAAP) $ 573 8% $ 948 11% $ 1,017 11%
General and administrative (GAAP) $ 461 7% $ 591 7% $ 648 7%Less: Stock-based compensation expense (43) (68) (63)
General and administrative (non-GAAP) $ 418 7% $ 523 6% $ 585 6%
Charge related to potential resolution of Department of Justice investigation (GAAP) $ - - $ 500 6% $ - -
Less: Charge related to potential resolution of Department of Justice investigation - (500) -
Charge related to potential resolution of Department of Justice investigation (non-GAAP) $ - - $ - 0% $ - -
Total costs and expenses (GAAP) $ 4,455 65% $ 6,279 73% $ 6,145 68%
Less: Stock-based compensation expense and charge related to potential resolution of Department of Justice investigation (309) (932) (435)
Total costs and expenses (non-GAAP) $ 4,146 61% $ 5,347 62% $ 5,710 63%
(1) Percentages based on revenues of $6,820 million in Q2'10, $8,575 million in Q1'11 and $9,026 million in Q2'11.
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Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures
($ in millions except per share amounts) Q2'10Operating Margin (1) Q1'11
Operating Margin (1) Q2'11
Operating Margin (1)
Income from operations (GAAP) $ 2,365 35% $ 2,296 27% $ 2,881 32%
Add: Stock-based compensation expense 309 432 435
Add: Charge related to potential resolution of Department of Justice investigation - 500 -
Income from operations (non-GAAP) $ 2,674 39% $ 3,228 38% $ 3,316 37%
Net income (GAAP) $ 1,840 $ 1,798 $ 2,505
Add: Stock-based compensation expense (net of tax) 239 340 344
Add: Charge related to potential resolution of Department of Justice investigation - 500 -
Net income (non-GAAP) $ 2,079 $ 2,638 $ 2,849
Net income per share - diluted (GAAP) $ 5.71 $ 5.51 $ 7.68
Net income per share - diluted (non-GAAP) $ 6.45 $ 8.08 $ 8.74
Shares used in per share calculation - diluted 322 326 326
(1) Percentages based on revenues of $6,820 million in Q2'10, $8,575 million in Q1'11 and $9,026 million in Q2'11.
Q2 2011 Quarterly Earnings
Summary