Q2 2010 Quarterly Earnings Summary

Second Quarter 2010 Highlights

• Revenue growth of 24% Y/Y and 1% Q/Q
– – –
Google properties revenue i G l ti increased 23% Y/Y and 1% Q/Q d d 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

Quarterly Revenues
Q2’10 Y/Y Growth = 24% Q2’10 Q/Q Growth = 1%
$7,000 $6,500 $6,000 $5,500 $5,000

6,820 6,674 6,775 5,945
2,044 1,801 2,036 2,063

5,541 5,701 5,509 5,523 5,186 5,367
1,655 1,686 1,680 1,693 1,638 1,684

($ in millions) $

$4,500 $4,000 $3,500 $3 500 $3,000 $2,500 $2,000

4,421 3,400 3 400 3,530 , 3,672 3,811 3,693 3,653 3,956

4,439

4,499

$1,500 $1,000 $500 $0 100 Q1'08
3

182 Q2'08

189 Q3'08 Other

197 Q4'08

178 Q1'09

186 Q2'09

188 Q3'09

209 Q4'09

300 Q1'10

258 Q2'10

Google.com

Network

U.S. vs. 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
100% 90% 80%

51%
70% 60% 50% 40% 30%

52%

51%

50%

52%

53%

53%

53%

53%

52%

49%
20% 10% 0% Q1'08

48%

49%

50%

48%

47%

47%

47%

47%

48%

Q2'08

Q3'08

Q4'08

Q1'09

Q2'09

Q3'09

Q4'09

Q1'10

Q2'10

US
4

International

Traffic Acquisition Costs
$1,800 $ , $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $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
TAC
5

40%

35%

29.2% 29 2%

28.4% 27.9%

30% 26.9% 26.9% 27.2% 27.1% 26.6% 26.4% 26.4% 1,721 1,711 1,732 25%

($ in millions)

1,486

1,474 1,495

1,483

1,436

1,453

1,559 1 559 20%

15%

10%

TAC as % of Advertising Revenues

Costs and Expenses
GAAP ( ($ in millions) )
Cost of Revenues
Percent of revenues

Q2'09
$2,108
38%

Q1'10
$2,452
36%

Q2'10
$2,467
36%

Research & Development
Percent of revenues

$708
13%

$818
12%

$898
13%

Sales & Marketing
Percent of revenues

$469
8%

$607
9%

$629
9%

General & Administrative
Percent of revenues

$364
7%

$410
6%

$461
7%

Total Costs & Expenses
Percent of revenues

$3,649
66%

$4,287
63%

$4,455
65%

Non-GAAP ($ in millions)
Cost of Revenues
Percent of revenues

Q2'09
$2,094
38%

Q1'10
$2,446
36%

Q2'10
$2,459
36%

Research & Development
Percent of revenues

$526
10%

$627
9%

$696
10%

Sales & Marketing
Percent of revenues

$412
7%

$553
8%

$573
8%

General & Administrative
Percent of revenues

$324
6%

$370
6%

$418
7%

Total Costs & Expenses
Percent of revenues

$3,356
61%

$3,996
59%

$4,146
61%

Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses
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Profitability
GAAP ($ in millions except per share amounts) Income from Operations Operating Margin Net Income EPS (diluted) Non-GAAP ($ in millions except per share amounts) i illi t h t ) Income from Operations Operating Margin Net Income EPS (diluted)
$ $ $ $ $ $

Q2'09
1,874 34% 1,485 4.66 $ $ $

Q1'10
2,488 37% 1,955 6.06 $ $ $

Q2'10
2,365 35% 1,840 5.71

Q2'09
2,167 39% 1,708 5.36 $ $ $

Q1'10
2,779 41% 2,181 6.76 $ $ $

Q2'10
2,674 39% 2,079 6.45

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

7

Free Cash Flow

($ in millions) Net cash provided by operating activities Less purchases of property and equipment q p

Q2'09
$1,609

Q1'10
$2,584

Q2'10
$2,085

($ ($139) )

($ ($239) )

($ ($476) )

Free cash flow (Non-GAAP)

$1,470

$2,345

$1,609

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Overview of Q2 2010 OI&E and FX
In Interest Income and Other (Expense), Net, we recognized net income of $69M for Q2
• In Q2, we recognized $136M of interest income earned on our investments and $43M in realized gains. • In Q2, a greater portion of our option portfolio was in the money as foreign exchange rates moved 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 rates remained 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 foreign exchange rates remained constant from Q2 2009 through Q2 2010, our revenue in Q2 2010 would h ld have b been $24M l lower. • In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $79M to international revenue this quarter.

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Revenues by Geography

($ in millions) United St t U it d States United Kingdom Rest of the World Total Revenues

Q2'09
$2,609 $715 $2,199 $5,523

Q1'10
$3,196 $842 $2,737 $6,775

Q2'10
$3,288 $770 $2,762 $6,820

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International Revenues Excluding Hedging and FX Impact (Y/Y)
($ in millions) UK revenues (GAAP) ( ) exclude: a) f/x impact on Q2'10 revenues using Q2'09 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Y/Y % (Non-GAAP)
n/a (67) 5 (19)

Q2'09 Q2'10
$715 $770

($ in millions) UK revenues (GAAP) ( ) exclude: a) f/x impact on Q1'10 revenues using Q1'09 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Y/Y % (Non-GAAP)

Q1'09 Q1'10
$733 $842

n/a (82)

(72) (10)

$648

$756 17%

$651

$760 17%

($ in millions) ROW revenues (GAAP) exclude: a) f/x impact on Q2'10 revenues using Q2'09 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact (Non-GAAP) Y/Y % (Non-GAAP)
11

Q2'09 Q2'10
$2,199 $2,762

($ in millions) ROW revenues (GAAP) exclude: a) f/x impact on Q1'10 revenues using Q1'09 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact (Non-GAAP) Y/Y % (Non-GAAP)

Q1'09 Q1'10
$2,149 $2,737

n/a (57)

(29) (60)

n/a (72)

(170) -

$2,142 $2,673 25%

$2,077 $2,567 24%

International Revenues Excluding Hedging and FX Impact (Q/Q)
($ in millions) UK Revenues (GAAP) exclude: a) f/x impact on Q2'10 revenues using Q1'10 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Q/Q % (Non-GAAP)
n/a (10) $832 47 (19) $798 -4%

Q1'10 Q2'10
$842 $770

($ in millions) UK Revenues (GAAP) exclude: a) f/x impact on Q1'10 revenues using Q4'09 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Q/Q % (Non-GAAP)

Q4'09 Q1'10
$772 $842

n/a (8) $764

20 (10) $852 12%

($ in millions) ROW Revenues (GAAP) exclude: a) f/x impact on Q2'10 revenues using Q1'10 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact ( (Non-GAAP) ) Q/Q % (Non-GAAP)
12

Q1'10 Q2'10
$2,737 $2,762

($ in millions) ROW Revenues (GAAP) exclude: a) f/x impact on Q1'10 revenues using Q4'09 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact ( (Non-GAAP) ) Q/Q % (Non-GAAP)

Q4'09 Q1'10
$2,747 $2,737

n/a -

129 (60)

n/a -

92 -

$2,737 $2,831 3%

$2,747 $2,829 3%

Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses
($ in millions) Cost of revenues (GAAP) Less: Stock-based compensation expense Cost of revenues (non-GAAP) Research and development (GAAP) Less: Stock-based compensation expense Research and development (non GAAP) (non-GAAP) Sales and marketing (GAAP) Less: Stock-based compensation expense Sales and marketing (non-GAAP) General and administrative (GAAP) Less: Stock-based compensation expense General and administrative (non-GAAP) Total costs and expenses (GAAP) Less: Stock-based compensation expense Total T t l costs and expenses (non-GAAP) t d ( GAAP) $ $ $ $ $ $ $ $ $ $ Q2'09 2,108 2 108 (14) 2,094 708 (182) 526 469 (57) 412 364 (40) 324 3,649 (293) 3,356 3 356 As a % of Revenues (1) 38% $ 38% $ 13% $ 10% $ 8% $ 7% $ 7% $ 6% $ 66% $ 61% $ Q1'10 2,452 2 452 (6) 2,446 818 (191) 627 607 (54) 553 410 (40) 370 4,287 (291) 3,996 3 996 As a % of Revenues (1) 36% $ 36% $ 12% $ 9% $ 9% $ 8% $ 6% $ 6% $ 63% $ 59% $ Q2'10 2,467 2 467 (8) 2,459 898 (202) 696 629 (56) 573 461 (43) 418 4,455 (309) 4,146 4 146 As a % of Revenues (1) 36% 36% 13% 10% 9% 8% 7% 7% 65% 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 measures to the nearest comparable GAAP measures

($ in millions except per share amounts) Income from operations (GAAP) Add: Stock-based compensation expense Add S k b d i Income from operations (non-GAAP) Net income (GAAP) Add: Stock-based compensation expense (net of tax) Net income (non GAAP) (non-GAAP) Net income per share - diluted (GAAP) Net income per share - diluted (non-GAAP) Shares used in per share calculation - diluted $ $ $ $ $ $

Q2'09 1,874 293 2,167 1,485 223 1,708 4.66 5.36 319

Operating Margin (1) 34% $ 39% $ $ $ $ $

Q1'10 2,488 291 2,779 1,955 226 2,181 6.06 6.76 323

Operating Margin (1) 37% $ 41% $ $ $ $ $

Q2'10 2,365 309 2,674 1,840 239 2,079 5.71 6.45 322

Operating Margin (1) 35% 39%

(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. $5,523 Q2'09 $6,775 Q1'10 $6,820 Q2'10

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Q2 2010 Quarterly Earnings Summary

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