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Q4 2011 Quarterly Earnings Summary

Fourth Quarter 2011 Highlights

Revenue growth of 25% Y/Y and 9% Q/Q



Google properties revenue increased 29% Y/Y and 8% Q/Q Network revenues increased 15% Y/Y and 11% Q/Q International revenues were $5.6 billion

Operational Highlights

Strong financial metrics: revenue growth, profitability, cash flow Continuing to invest in three major areas of focus:

Core ads: Search and Display advertising Businesses demonstrating high consumer success: YouTube, Android, Chrome New businesses where were investing to drive adoption and innovation: Social, Enterprise, Commerce, Local

Quarterly Revenues
$11,000
$10,000

Q411 Y/Y Growth = 25% Q411 Q/Q Growth = 9% 10,584 9,720 8,575 9,026
2,595 2,880

$9,000
$8,000

8,440 7,286

2,484

($ in millions)

$7,000
$6,000

6,674 6,775 6,820 5,509 5,523


1,638 1,684

2,495 2,199

2,427

5,945
2,044

2,036

2,063

$5,000
$4,000

1,801
7,294 6,740 5,672 3,956 5,879

6,232

$3,000 4,421 4,439


4,499 $2,000 3,693 3,653

4,833

$1,000
$0 178 Q1'09 186 Q2'09 188 Q3'09 209 Q4'09 300 Q1'10 258 Q2'10
Other

254 Q3'10

273 Q4'10

269
Q1'11
Network

310 Q2'11

385 Q3'11

410 Q4'11

Google.com

U.S. vs. International Revenues


($ in millions) 5,509 5,523 5,945 6,674 6,775 6,820 7,286 8,440 8,575 9,026 9,720 10,584
100% 90%

80%

52%
70% 60%

53%

53%

53%

53%

52%

52%

52%

53%

54%

55%

53%

50% 40%
30%

48%
20%

47%

47%

47%

47%

48%

48%

48%

47%

46%

45%

47%

10% 0%
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 US
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Q2'10

Q3'10

Q4'10

Q1'11

Q2'11

Q3'11

Q4'11

International

Traffic Acquisition Costs


$2,500 30%

26.9%

27.2% 27.1% 26.6% 26.4% 26.4% 25.7%


25.3%

$2,000

24.5%

24.2% 23.7%

24.1%

25%

($ in millions)

$1,500

2,453

$1,000
1,436 1,453

2,069 2,038 2,110 1,559


1,721 1,711 1,732 1,805

2,210

20%

$500

$0
Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11
TAC TAC as % of Advertising Revenues

15%

Costs and Expenses


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

Q4'10
$2,946
35%

Q3'11
$3,378
35%

Q4'11
$3,702
35%

Research & Development


Percent of revenues

$1,051
12%

$1,404
14%

$1,298
12%

Sales & Marketing


Percent of revenues

$902
11%

$1,204
12%

$1,268
12%

General & Administrative


Percent of revenues

$559
7%

$676
7%

$809
8%

Total Costs & Expenses


Percent of revenues

$5,458
65%

$6,662
69%

$7,077
67%

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

Q4'10
$2,901
34%

Q3'11
$3,306
34%

Q4'11
$3,625
34%

Research & Development


Percent of revenues

$827
10%

$1,093
11%

$1,032
10%

Sales & Marketing


Percent of revenues

$826
10%

$1,100
11%

$1,163
11%

General & Administrative


Percent of revenues

$508
6%

$592
6%

$721
7%

Total Costs & Expenses


Percent of revenues

$5,062
60%

$6,091
63%

$6,541
62%

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

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) Income from Operations Operating Margin Net Income EPS (diluted)
$ $ $ $

Q4'10
$ 2,982 35% 2,543 7.81

Q3'11
$ 3,058 31% $ $ 2,729 8.33

Q4'11
$ 3,507 33% $ $ 2,705 8.22

Q4'10
$ 3,378 40% 2,850 8.75

Q3'11
$ 3,629 37% $ $ 3,184 9.72

Q4'11
$ 4,043 38% $ $ 3,127 9.50

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

Free Cash Flow

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

Q4'10
$3,526

Q3'11
$3,950

Q4'11
$3,924

($2,545)

($680)

($951)

Free cash flow (non-GAAP)

$981

$3,270

$2,973

Overview of Q4 2011 OI&E and FX


In Interest and Other Income (Expense), Net, we recognized net expense of $18M for Q4
In Q4, we recognized $199M of interest income earned on our investments and $39M in realized gains. We recognized an impairment charge of $88M related to our investment in Clearwire. We expensed $134M 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 2011 through Q4 2011, our revenue in Q4 2011 would have been $239M higher. Excluding gains related to our FX cash flow hedging program, had foreign exchange rates remained constant from Q4 2010 through Q4 2011, our revenue in Q4 2011 would have been $39M lower. In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $25M to international revenue this quarter.

Revenues by Geography

($ in millions) United States United Kingdom

Q4'10
$4,055 $878

Q3'11
$4,420 $1,047

Q4'11
$4,980 $1,064

Rest of the world


Total Revenues

$3,507
$8,440

$4,253
$9,720

$4,540
$10,584

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

($ in millions) UK revenues (GAAP) exclude: a) f/x impact on Q4'11 revenues using Q4'10 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Y/Y % (Non-GAAP)

Q4'10 Q4'11 $878 $1,064

($ in millions) UK revenues (GAAP) exclude: a) f/x impact on Q3'11 revenues using Q3'10 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Y/Y % (Non-GAAP)

Q3'10

Q3'11

$840 $1,047

n/a (2)

2 (6)

n/a (11)

(56) -

$876 $1,060 21%

$829

$991 20%

($ in millions) ROW revenues (GAAP) exclude: a) f/x impact on Q4'11 revenues using Q4'10 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact (NonGAAP) Y/Y % (Non-GAAP)

Q4'10 Q4'11 $3,507 $4,540

($ in millions) ROW revenues (GAAP) exclude: a) f/x impact on Q3'11 revenues using Q3'10 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact (NonGAAP) Y/Y % (Non-GAAP)

Q3'10

Q3'11

$2,929 $4,253

n/a (23)

(41) (19)

n/a (78)

(427) (1)

$3,484 $4,480 29%

$2,851 $3,825 34%

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

($ in millions) UK revenues (GAAP) exclude: a) f/x impact on Q4'11 revenues using Q3'11 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Q/Q % (Non-GAAP)

Q3'11 Q4'11 $1,047 $1,064

($ in millions) UK revenues (GAAP) exclude: a) f/x impact on Q3'11 revenues using Q2'11 rates (gains)/losses b) hedging gains UK revenues excluding f/x and hedging impact (NonGAAP) Q/Q % (Non-GAAP)

Q2'11

Q3'11

$976 $1,047

n/a -

32 (6)

n/a -

1 -

$1,047 $1,090 4%

$976 $1,048 7%

($ in millions) ROW revenues (GAAP) exclude: a) f/x impact on Q4'11 revenues using Q3'11 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact (NonGAAP) Q/Q % (Non-GAAP)

Q3'11 Q4'11 $4,253 $4,540

($ in millions) ROW revenues (GAAP) exclude: a) f/x impact on Q3'11 revenues using Q2'11 rates (gains)/losses b) hedging gains ROW revenues excluding f/x and hedging impact (NonGAAP) Q/Q % (Non-GAAP)

Q2'11

Q3'11

$3,895 $4,253

n/a (1)

207 (19)

n/a (4)

(54) (1)

$4,252 $4,728 11%

$3,891 $4,198 8%

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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) 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 costs and expenses (non-GAAP)

Q4'10 $ $ $ $ $ $ $ $ $ 2,946 (45) 2,901 1,051 (224) 827 902 (76) 826 559 (51) 508 5,458 (396) 5,062

As a % of Revenues (1) 35% 34% 12% 10% 11% 10% 7% 6% 65% $ $ $ $ $ $ $ $ $

Q3'11 3,378 (72) 3,306 1,404 (311) 1,093 1,204 (104) 1,100 676 (84) 592 6,662 (571) 6,091

As a % of Revenues (1) 35% 34% 14% 11% 12% 11% 7% 6% 69%

Q4'11 $ $ $ $ $ $ $ $ $ 3,702 (77) 3,625 1,298 (266) 1,032 1,268 (105) 1,163 809 (88) 721 7,077 (536) 6,541

As a % of Revenues (1) 35% 34% 12% 10% 12% 11% 8% 7% 67%

60%

63%

62%

(1) Percentages based on revenues of $8,440 million in Q4'10, $9,720 million in Q3'11 and $10,584 million in Q4'11.

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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) Income from operations (GAAP) Add: Stock-based compensation expense Income from operations (non-GAAP) Net income (GAAP) Add: Stock-based compensation expense (net of tax) Net income (non-GAAP) Net income per share - diluted (GAAP) Net income per share - diluted (non-GAAP) Shares used in per share calculation - diluted $ $ $ $ $ $

Q4'10 2,982 396 3,378 2,543 307 2,850 7.81 8.75 326

Operating Margin (1) 35% $ 40% $ $ $ $ $

Q3'11 3,058 571 3,629 2,729 455 3,184 8.33 9.72 327

Operating Margin (1) 31% $ 37% $ $ $ $ $

Q4'11 3,507 536 4,043 2,705 422 3,127 8.22 9.50 329

Operating Margin (1) 33% 38%

(1) Percentages based on revenues of $8,440 million in Q4'10, $9,720 million in Q3'11 and $10,584 million in Q4'11.

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Q4 2011 Quarterly Earnings Summary