Martin engegren google earnings q2 2012

Q2 2012 Quarterly Earnings

Summary

2

Second Quarter 2012 Highlights

• Consolidated revenue growth of 35% Y/Y and 15% Q/Q – Consolidated revenues were $12.2 billion

• Google business revenues (advertising and other) were $11.0 billion

– Google properties revenues increased 21% Y/Y and 3% Q/Q

– Network revenues increased 20% Y/Y and 2% Q/Q

• Motorola business revenues (hardware and other) were $1.3 billion *

– Consolidated international revenues were $6.5 billion

• Operational Highlights – Completed acquisition of Motorola on May 22, 2012

– 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 we’re investing to drive adoption and innovation: Social, Enterprise, Commerce, Local

* The operating results of Motorola were included for the period from the acquisition date of May 22, 2012 through June 30, 2012.

3

Consolidated Quarterly Revenues

Q2’12 Y/Y Growth = 35% Q2’12 Q/Q Growth = 15%

300 258 254 273 269 310 385 410 420 439

4,439 4,499 4,833 5,672 5,879 6,232

6,740 7,294 7,312 7,542

2,036 2,063 2,199

2,495 2,427 2,484

2,595

2,880 2,913 2,983

1,250

6,775 6,820 7,286

8,440 8,575 9,026

9,720

10,584 10,645

12,214

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

$13,000

Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12

($ in

mill

ions

)

Other Google.com Network Motorola

4

U.S. vs. International Revenues - Consolidated

47% 48% 48% 48% 47% 46% 45% 47% 46% 47%

53% 52% 52% 52% 53% 54% 55% 53% 54% 53%

6,775 6,820 7,286 8,440 8,575 9,026 9,720 10,584 10,645 12,214

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12

($ in millions)

US International

5

Traffic Acquisition Costs

1,711 1,732 1,805 2,069 2,038 2,110 2,210

2,453 2,510 2,600

26.4% 26.4% 25.7%

25.3% 24.5%

24.2% 23.7% 24.1% 24.5% 24.7%

15.0%

20.0%

25.0%

30.0%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12

($ in

milli

ons)

TAC TAC as % of Advertising Revenues

6

Consolidated 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) Q2'11 Q1'12 Q2'12 Cost of Revenues $3,172 $3,789 $5,013

Percent of revenues 35% 36% 41%

Research & Development $1,234 $1,441 $1,585 Percent of revenues 14% 13% 13%

Sales & Marketing $1,091 $1,269 $1,433 Percent of revenues 12% 12% 12%

General & Administrative $648 $757 $980 Percent of revenues 7% 7% 8%

Total Costs & Expenses $6,145 $7,256 $9,011 Percent of revenues 68% 68% 74%

Non-GAAP ($ in millions) Q2'11 Q1'12 Q2'12 Cost of Revenues $3,121 $3,715 $4,918

Percent of revenues 35% 35% 40%

Research & Development $987 $1,142 $1,281 Percent of revenues 11% 11% 10%

Sales & Marketing $1,017 $1,172 $1,294 Percent of revenues 11% 11% 11%

General & Administrative $585 $671 $771 Percent of revenues 6% 6% 6%

Total Costs & Expenses $5,710 $6,700 $8,264 Percent of revenues 63% 63% 68%

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Profitability

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

Consolidated GAAP ($ in millions except per share amounts) Q2'11 Q1'12 Q2'12 Income from Operations $ 2,881 $ 3,389 $ 3,203 Operating Margin 32% 32% 26% Net Income $ 2,505 $ 2,890 $ 2,785 EPS (diluted) $ 7.68 $ 8.75 $ 8.42

Non-GAAP ($ in millions except per share amounts) Q2'11 Q1'12 Q2'12 Income from Operations $ 3,316 $ 3,945 $ 3,950 Operating Margin 37% 37% 32% Net Income $ 2,849 $ 3,328 $ 3,346 EPS (diluted) $ 8.74 $ 10.08 $ 10.12

Google GAAP Q2'12 Income from Operations $ 3,436 Google Operating Margin 31%

Non-GAAP Q2'12 Income from Operations $ 3,988 Google Operating Margin 36%

Motorola GAAP Q2'12 Loss from Operations $ (233) Motorola Operating Margin -19%

Non-GAAP Q2'12 Loss from Operations $ (38) Motorola Operating Margin -3%

8

Consolidated Free Cash Flow

($ in millions) Q2’11 Q1’12 Q2’12

Net cash provided by operating activities $3,519 $3,694 $4,252

Less purchases of property and equipment ($917) ($607) ($774)

Free cash flow (non-GAAP) $2,602 $3,087 $3,478

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Overview of Q2 2012 OI&E and FX

• In Interest and Other Income, Net, we recognized net income of $254M for Q2 • In Q2, we recognized $180M of interest income earned on our investments and $55M in realized

gains. In addition we recognized a $188M gain pertaining to divestiture of a business during Q2. • We expensed $120M related to our FX cash flow hedging program.

• Excluding gains related to our foreign exchange risk management program, had foreign exchange

rates remained constant from the first quarter of 2012 through the second quarter of 2012, our Google business revenues in the second quarter of 2012 would have been $68 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2011 through the second quarter of 2012, our Google business revenues in the second quarter of 2012 would have been $350 million higher.

• In addition, our FX cash flow hedging program allowed us to recognize a benefit of approximately $81M to Google business international revenue this quarter.

10

Google Business - Revenues by Geography

($ in millions) Q2'11 Q1'12 Q2'12

United States $ 4,155 $ 4,874 $ 5,005

United Kingdom 976 1,150 1,175

Rest of the world 3,895 4,621 4,784

Total Google Revenues $ 9,026 $ 10,645 $ 10,964

11

Google Business - International Revenues Excluding Hedging and FX Impact (Y/Y)

($ in millions) Q2'11 Q2'12 ($ in millions) Q1'11 Q1'12

UK revenues (GAAP) $976 $1,175 UK revenues (GAAP) $969 $1,150

exclude: exclude:

a) f/x impact on Q2'12 revenues using Q2'11 rates (gains)/losses n/a 30


b) hedging gains - (7) b) hedging gains (4) (4)

UK revenues excluding f/x and hedging impact (Non-GAAP) $976 $1,198 UK revenues excluding f/x and hedging impact (Non-GAAP) $965 $1,153

Y/Y % (Non-GAAP) 23% Y/Y % (Non-GAAP) 19%


ROW revenues (GAAP) $3,895 $4,784 ROW revenues (GAAP) $3,601 $4,621

exclude: exclude:



b) hedging gains (4) (74) b) hedging gains (10) (33)

ROW revenues excluding f/x and hedging impact (Non-GAAP) $3,891 $5,030

ROW revenues excluding f/x and hedging impact (Non-GAAP) $3,591 $4,648

Y/Y % (Non-GAAP) 29% Y/Y % (Non-GAAP) 29%

12

Google Business - International Revenues Excluding Hedging and FX Impact (Q/Q)


UK revenues (GAAP) $1,150 $1,175 UK revenues (GAAP) $1,064 $1,150

exclude: exclude:

a) f/x impact on Q2'12 revenues using Q1'12 rates (gains)/losses n/a (10)



UK revenues excluding f/x and hedging impact (Non-GAAP) $1,146 $1,158 UK revenues excluding f/x and hedging impact (Non-GAAP) $1,058 $1,150

Q/Q % (Non-GAAP) 1% Q/Q % (Non-GAAP) 9%


ROW revenues (GAAP) $4,621 $4,784 ROW revenues (GAAP) $4,540 $4,621

exclude: exclude:




ROW revenues excluding f/x and hedging impact (Non-GAAP) $4,588 $4,788 ROW revenues excluding f/x and hedging impact (Non-GAAP) $4,521 $4,663

Q/Q % (Non-GAAP) 4% Q/Q % (Non-GAAP) 3%

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Table 1 - Reconciliations of consolidated non-GAAP costs and expenses to GAAP costs and expenses

($ in millions) Q2'11 As a % of

Revenues (1) Q1'12 As a % of

Revenues (1) Q2'12 As a % of

Revenues (1) Cost of revenues - (GAAP) $ 3,172 35% $ 3,789 36% $ 5,013 41% Less: non-GAAP adjustments (51) (74) (95)

Cost of revenues - (non-GAAP) $ 3,121 35% $ 3,715 35% $ 4,918 40%

Research and development - (GAAP) $ 1,234 14% $ 1,441 13% $ 1,585 13% Less: non-GAAP adjustments (247) (299) (304)

Research and development (non-GAAP) $ 987 11% $ 1,142 11% $ 1,281 10%

Sales and marketing - (GAAP) $ 1,091 12% $ 1,269 12% $ 1,433 12% Less: non-GAAP adjustments (74) (97) (139)

Sales and marketing (non-GAAP) $ 1,017 11% $ 1,172 11% $ 1,294 11%

General and administrative - (GAAP) $ 648 7% $ 757 7% $ 980 8% Less: non-GAAP adjustments (63) (86) (209)

General and administrative (non-GAAP) $ 585 6% $ 671 6% $ 771 6%

Total costs and expenses (GAAP) $ 6,145 68% $ 7,256 68% $ 9,011 74% Less: non-GAAP adjustments (435) (556) (747)

Total costs and expenses (non-GAAP) $ 5,710 63% $ 6,700 63% $ 8,264 68%

(1) Percentages based on consolidated revenues of $9,026 million in Q2'11, $10,645 million in Q1'12, and $12,214 million in Q2'12.

(2) Pertains to stock-based compensation expense and charge related to severance and benefit arrangements in connection with the Motorola acquisition.

14

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

Consolidated

(In millions except per share amounts) Q2'11 Operating Margin (1) Q1'12

Operating Margin (1) Q2'12

Operating Margin (1)

Income from operations (GAAP) $ 2,881 32% $ 3,389 32% $ 3,203 26%

Add: Stock-based compensation expense 435 556 565

Add: Severance and benefit arrangements in connection with the Motorola acquisition - - 182 (3)

Income from operations (non-GAAP) $ 3,316 37% $ 3,945 37% $ 3,950 32%

Net income (GAAP) $ 2,505 $ 2,890 $ 2,785

Add: Stock-based compensation expense (net of tax) (2) 344 438 430

Add: Severance and benefit arrangements in connection with the Motorola acquisition (net of tax) (2) - - 131

Net income (non-GAAP) $ 2,849 $ 3,328 $ 3,346

Net income per share - diluted (GAAP) $ 7.68 $ 8.75 $ 8.42

Net income per share - diluted (non-GAAP) $ 8.74 $ 10.08 $ 10.12

Shares used in per share calculation - diluted 326 330 331

(1) Percentages based on consolidated revenues of $9,026 million in Q2'11, $10,645 million in Q1'12, and $12,214 million in Q2'12. (2) The tax effects are calculated using the tax-deductible portion of stock-based compensation expense and the charge related to severance and benefit arrangements in connection with the Motorola acquisition, and applying the entity-specific, U.S. federal and blended state tax rates. (3) Includes $93 million of stock-based compensation expense.

By Business Google Motorola

(In millions) Q2'12 Operating Margin (4) Q2'12

Operating Margin (4)

Income (Loss) from operations (GAAP) $ 3,436 31% $ (233) -19%

Add: Stock-based compensation expense 552 13

Add: Severance and benefit arrangements in connection with the Motorola acquisition - 182 (3)

Income (Loss) from operations (non-GAAP) $ 3,988 36% $ (38) -3%

(4) Percentages based on Google revenues of $10,964 million in Q2'12 and Motorola revenues of $1,250 million in Q2'12.

Q2 2012 Quarterly Earnings

Summary

Economy & Finance

Martin engegren google earnings q2 2012