Q4 2010

Quarterly Earnings
Summary

Fourth Quarter 2010 Highlights

• Revenue growth of 26% Y/Y and 16% Q/Q

Google properties revenue increased 28% Y/Y and 17% Q/Q

Network revenues increased 22% Y/Y and 13% Q/Q

International revenues were $4.4 billion

• Operational Highlights

2

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 Sales & Marketing – for both new products + advertiser acquisition

Investing in Long-term infrastructure – including both facilities + our core computing
network

Quarterly Revenues
Q4’10 Y/Y Growth = 26%
Q4’10 Q/Q Growth = 16%

8,440

$8,500
$8,000

7,286

$7,500

2,495

6,674 6,775 6,820

$7,000
$6,500

($ in millions)

$6,000
$5,500

5,186

5,945
5,541 5,701 5,509 5,523
5,367

$5,000
$4,500

1,686

1,655

1,680

1,693

2,199
2,044

2,036

2,063

1,801
1,638

1,684

$4,000
$3,500
5,672

$3,000
$2,500
$2,000

4,421

4,439

4,499

4,833

3,530

3,672

3,811

3,693

3,653

3,956

100

182

189

197

178

186

188

209

300

258

254

273

Q1'08

Q2'08

Q3'08

Q4'08

Q1'09

Q2'09

Q3'09

Q4'09

Q1'10

Q2'10

Q3'10

Q4'10

3,400

$1,500
$1,000
$500
$0

3

Other

Google.com

Network

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 8,440
100%
90%
80%

51%

52%

51%

50%

52%

53%

53%

53%

53%

52%

52%

52%

49%

48%

49%

50%

48%

47%

47%

47%

47%

48%

48%

48%

Q1'08

Q2'08

Q3'08

Q4'08

Q1'09

Q2'09

Q3'09

Q4'09

Q1'10

Q2'10

Q3'10

Q4'10

70%
60%
50%
40%
30%
20%
10%
0%

US
4

International

($ in millions)

Traffic Acquisition Costs
$2,100
$2,000
$1,900
$1,800
$1,700
$1,600
$1,500
29.2%
$1,400
28.4%
27.9%
$1,300
26.9% 26.9% 27.2% 27.1% 26.6%
26.4% 26.4%
$1,200
25.7% 25.3%
$1,100
$1,000
2,069
1,805
$900
1,721 1,711 1,732
$800
1,559
1,486 1,474 1,495 1,483 1,436 1,453
$700
$600
$500
$400
$300
$200
$100
$0
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10
TAC
5

TAC as % of Advertising Revenues

40%

35%

30%

25%

20%

15%

10%

Costs and Expenses
GAAP
($ in millions)

Q4'09

Cost of Revenues
Percent of revenues

Research & Development
Percent of revenues

Sales & Marketing
Percent of revenues

General & Administrative
Percent of revenues

Total Costs & Expenses
Percent of revenues

Q3'10

Q4'10

$2,408

$2,552

$2,946

36%

35%

35%

$736

$994

$1,051

11%

14%

12%

$583

$661

$902

9%

9%

11%

$466

$532

$559

7%

7%

7%

$4,193

$4,739

$5,458

63%

65%

65%

Non-GAAP
($ in millions)

Q4'09

Cost of Revenues
Percent of revenues

Research & Development
Percent of revenues

Sales & Marketing
Percent of revenues

General & Administrative
Percent of revenues

Total Costs & Expenses
Percent of revenues

Q3'10

Q4'10

$2,402

$2,544

$2,901

36%

35%

34%

$557

$750

$827

8%

10%

10%

$531

$586

$826

8%

8%

10%

$427

$479

$508

7%

7%

6%

$3,917

$4,359

$5,062

59%

60%

60%

Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and
expenses to GAAP costs and expenses
6

Profitability
GAAP
($ in millions except per share amounts)

Q4'09

Q3'10

Q4'10

Income from Operations

$

$

$

Operating Margin

2,481
37%

2,547
35%

35%

Net Income

$

1,974

$

2,167

$

2,543

EPS (diluted)

$

6.13

$

6.72

$

7.81

Non-GAAP
($ in millions except per share amounts)

Q4'09

Q3'10

Q4'10

Income from Operations

$

$

$

Operating Margin

2,757
41%

2,927
40%

3,378
40%

Net Income

$

2,188

$

2,462

$

2,850

EPS (diluted)

$

6.79

$

7.64

$

8.75

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

7

2,982

Free Cash Flow

($ in millions)

8

Q4'09

Q3'10

Q4'10

Net cash provided by
operating activities

$2,731

$2,886

$3,526

Less purchases of property
and equipment

($221)

($757)

($2,545)

Free cash flow (non-GAAP)

$2,510

$2,129

$981

Overview of Q4 2010 OI&E and FX
In Interest and Other Income, Net, we recognized net income of $160M for Q4
• In Q4, we recognized $176M of interest income earned on our investments and $55M in
realized gains.
• We expensed $62M 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 Q3 2010 through Q4 2010, our revenue in Q4 2010 would have
been $201M lower. Excluding gains related to our FX cash flow hedging program, had
foreign exchange rates remained constant from Q4 2009 through Q4 2010, our revenue in
Q4 2010 would have been $132M higher.
• In addition, our FX cash flow hedging program allowed us to recognize a benefit of
approximately $25M to international revenue this quarter.

9

Revenues by Geography

($ in millions)
United States

Q3'10

Q4'10

$3,155

$3,517

$4,055

$772

$840

$878

Rest of the World

$2,747

$2,929

$3,507

Total Revenues

$6,674

$7,286

$8,440

United Kingdom

10

Q4'09

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

($ in millions)
UK revenues (GAAP)

Q4'09 Q4'10
$772

$878

exclude:

UK revenues (GAAP)

Q3'09 Q3'10
$765

$840

n/a

50

(25)

(11)

$740

$879

exclude:

a) f/x impact on Q4'10 revenues using Q4'09
rates (gains)/losses

n/a

26

a) f/x impact on Q3'10 revenues using Q3'09
rates (gains)/losses

b) hedging gains

(8)

(2)

b) hedging gains

$764

$902

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

18%

Y/Y % (Non-GAAP)

UK revenues excluding f/x and hedging impact
(Non-GAAP)
Y/Y % (Non-GAAP)

19%

($ in millions)

Q4'09 Q4'10

($ in millions)

Q3'09 Q3'10

ROW revenues (GAAP)

$2,747 $3,507

ROW revenues (GAAP)

$2,378 $2,929

exclude:

exclude:

a) f/x impact on Q4'10 revenues using Q4'09
rates (gains)/losses

n/a

106

a) f/x impact on Q3'10 revenues using Q3'09
rates (gains)/losses

n/a

119

b) hedging gains

-

(23)

b) hedging gains

(14)

(78)

ROW revenues excluding f/x and hedging impact
(Non-GAAP)
Y/Y % (Non-GAAP)

11

($ in millions)

$2,747 $3,590
31%

ROW revenues excluding f/x and hedging impact
(Non-GAAP)
Y/Y % (Non-GAAP)

$2,364 $2,970
26%

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

($ in millions)
UK Revenues (GAAP)

Q3'10 Q4'10
$840

$878

exclude:
a) f/x impact on Q4'10 revenues using Q3'10
rates (gains)/losses
b) hedging gains
UK revenues excluding f/x and hedging impact
(Non-GAAP)
Q/Q % (Non-GAAP)

($ in millions)
ROW Revenues (GAAP)
exclude:

12

($ in millions)
UK Revenues (GAAP)

Q2'10 Q3'10
$770

$840

n/a
(19)

(24)
(11)

$751

$805

exclude:

n/a
(11)

(23)
(2)

$829

$853
3%

Q3'10 Q4'10
$2,929 $3,507

a) f/x impact on Q3'10 revenues using Q2'10
rates (gains)/losses
b) hedging gains
UK revenues excluding f/x and hedging impact
(Non-GAAP)
Q/Q % (Non-GAAP)

($ in millions)
ROW Revenues (GAAP)
exclude:

7%

Q2'10 Q3'10
$2,762 $2,929

a) f/x impact on Q4'10 revenues using Q3'10 rates
(gains)/losses
n/a
(178)
b) hedging gains
(78)
(23)
ROW revenues excluding f/x and hedging impact
(Non-GAAP)
$2,851 $3,306

a) f/x impact on Q3'10 revenues using Q2'10 rates
(gains)/losses
n/a
15
b) hedging gains
(60)
(78)
ROW revenues excluding f/x and hedging impact
(Non-GAAP)
$2,702 $2,866

Q/Q % (Non-GAAP)

Q/Q % (Non-GAAP)

16%

6%

Table 1 - Reconciliations of non-GAAP costs and expenses
to GAAP costs and expenses
($ in millions)

Q4'09

As a % of
Revenues (1)

As a % of
Revenues (1)

Q3'10

Q4'10

Cost of revenues (GAAP)
Less: Stock-based compensation expense

$

2,408
(6)

36% $

2,552
(8)

35% $

2,946
(45)

35%

Cost of revenues (non-GAAP)

$

2,402

36% $

2,544

35% $

2,901

34%

Research and development (GAAP)
Less: Stock-based compensation expense

$

736
(179)

11% $

994
(244)

14% $

1,051
(224)

12%

Research and development (non-GAAP)

$

557

8% $

750

10% $

827

10%

Sales and marketing (GAAP)
Less: Stock-based compensation expense

$

583
(52)

9% $

661
(75)

9% $

902
(76)

11%

Sales and marketing (non-GAAP)

$

531

8% $

586

8% $

826

10%

General and administrative (GAAP)
Less: Stock-based compensation expense

$

466
(39)

7% $

532
(53)

7% $

559
(51)

7%

General and administrative (non-GAAP)

$

427

7% $

479

7% $

508

6%

Total costs and expenses (GAAP)
Less: Stock-based compensation expense

$

4,193
(276)

63% $

4,739
(380)

65% $

5,458
(396)

65%

Total costs and expenses (non-GAAP)

$

3,917

59% $

4,359

60% $

5,062

60%

(1) Percentages based on revenues of $6,674 million in Q4'09, $7,286 million in Q3'10 and $8,440 million in Q4'10.

13

As a % of
Revenues (1)

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

($ in millions except per share amounts)

Q4'09

Operating
Margin (1)

Q3'10

Operating
Margin (1)

Income from operations (GAAP)
Add: Stock-based compensation expense

$

2,481
276

37% $

2,547
380

35% $

2,982
396

35%

Income from operations (non-GAAP)

$

2,757

41% $

2,927

40% $

3,378

40%

Net income (GAAP)
Add: Stock-based compensation expense (net of tax)

$

1,974
214

$

2,167
295

$

2,543
307

Net income (non-GAAP)

$

2,188

$

2,462

$

2,850

Net income per share - diluted (GAAP)

$

6.13

$

6.72

$

7.81

Net income per share - diluted (non-GAAP)

$

6.79

$

7.64

$

8.75

Shares used in per share calculation - diluted

322

322

(1) Percentages based on revenues of $6,674 million in Q4'09, $7,286 million in Q3'10 and $8,440 million in Q4'10.

14

Operating
Margin (1)

Q4'10

326

Q4 2010
Quarterly Earnings
Summary

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