Google Earnings Slides (Q3, 2010)

8/8/2019 Google Earnings Slides (Q3, 2010)

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Q3 2010

Quarterly EarningsSummary


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Third Quarter 2010 Highlights

Revenue growth of 23% Y/Y and 7% Q/Q Google properties revenue increased 22% Y/Y and 7% Q/Q

Network revenues increased 22% Y/Y and 7% Q/Q

International revenues were $3.8 billion

Operational Highlights 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 Products -- to leverage computer science to solve big problems


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Quarterly Revenues

($inmillions)

100 182 189 197 178 186 188 209 300 258 254

3,530

1,6861,655

1,6801,693

1,638

2,036 2,063

2,199

3,8113,400

3,693 3,956

4,439 4,499$4,833

4,421

3,672 3,653

1,801

2,044

1,684

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10

Other Google.com Network

Q310 Y/Y Growth = 23%

Q310 Q/Q Growth = 7%

5,186 5,3675,541 5,701 5,509 5,523

5,945

6,674 6,7756,820

7,286


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U.S. vs. International Revenues

49% 48% 49% 50% 48% 47% 47% 47% 47% 48% 48%

51% 52% 51% 50% 52% 53% 53% 53% 53% 52% 52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10

US International

5,186 5,367 5,541 5,701 5,509 5,523

($ in millions)

6,6745,945 6,775 6,820 7,286


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1,5591,721

1,486 1,474 1,495 1,483 1,436 1,453

1,8051,7321,711

26.6%27.1%26.9% 26.9% 27.2%

27.9%28.4%29.2%

26.4% 26.4%25.7%

$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

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10

10%

15%

20%

25%

30%

35%

40%

TAC TAC as % of Advertising Revenues

Traffic Acquisition Costs

($inmillions)


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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) Q3'09 Q2'10 Q3'10Cost of Revenues $2,226 $2,467 $2,552

Percent of revenues 37% 36% 35%

Research & Development $758 $898 $994Percent of revenues 13% 13% 14%

Sales & Marketing $498 $629 $661Percent of revenues 8% 9% 9%

General & Administrative $389 $461 $532Percent of revenues 7% 7% 7%

Total Costs & Expenses $3,871 $4,455 $4,739Percent of revenues 65% 65% 65%

Non-GAAP($ in millions) Q3'09 Q2'10 Q3'10Cost of Revenues $2,211 $2,459 $2,544


Research & Development $562 $696 $750


Sales & Marketing $436 $573 $586Percent of revenues 7% 8% 8%

General & Administrative $344 $418 $479Percent of revenues 6% 7% 7%

Total Costs & Expenses $3,553 $4,146 $4,359Percent of revenues 60% 61% 60%


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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

GAAP($ in millions except per share amounts) Q3'09 Q2'10 Q3'10

Income from Operations 2,074$ 2,365$ 2,547$

Operating Margin 35% 35% 35%

Net Income 1,639$ 1,840$ 2,167$

EPS (diluted) 5.13$ 5.71$ 6.72$

Non-GAAP

($ in millions except per share amounts) Q3'09 Q2'10 Q3'10

Income from Operations 2,392$ 2,674$ 2,927$

Operating Margin 40% 39% 40%

Net Income 1,884$ 2,079$ 2,462$

EPS (diluted) 5.89$ 6.45$ 7.64$


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Free Cash Flow

($ in millions) Q3'09 Q2'10 Q3'10

Net cash provided by

operating activities $2,726 $2,085 $2,886

Less purchases of property

and equipment ($186) ($476) ($757)

Free cash flow (non-GAAP) $2,540 $1,609 $2,129


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Overview of Q3 2010 OI&E and FX

In Interest and Other Income (Expense), Net, we recognized net income of$167M for Q3

In Q3, we recognized $172M of interest income earned on our investments and $62M inrealized gains.

We expensed $60M related to our FX cash flow hedging program.

Excluding gains related to our FX cash flow hedging program, had foreign exchange ratesremained constant from Q2 2010 through Q3 2010, our revenue in Q3 2010 would havebeen $9M lower. Excluding gains related to our FX cash flow hedging program, had foreignexchange rates remained constant from Q3 2009 through Q3 2010, our revenue in Q3 2010would have been $169M higher.

In addition, our FX cash flow hedging program allowed us to recognize a benefit ofapproximately $89M to international revenue this quarter.


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Revenues by Geography

($ in millions) Q3'09 Q2'10 Q3'10

United States $2,802 $3,288 $3,517

United Kingdom $765 $770 $840

Rest of the World $2,378 $2,762 $2,929

Total Revenues $5,945 $6,820 $7,286


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

($ in millions) Q3'09 Q3'10 ($ in millions) Q2'09 Q2'10UK revenues (GAAP) $765 $840 UK revenues (GAAP) $715 $770

exclude: exclude:

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

(gains)/losses n/a 50a) f/x impact on Q2'10 revenues using Q2'09 rates

(gains)/losses n/a 5

b) hedging gains (25) (11) b) hedging gains (67) (19)

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

GAAP) $740 $879


GAAP) $648 $756

Y/Y % (Non-GAAP) 19% Y/Y % (Non-GAAP) 17%

($ in millions) Q3'09 Q3'10 ($ in millions) Q2'09 Q2'10

ROW revenues (GAAP) $2,378 $2,929 ROW revenues (GAAP) $2,199 $2,762

exclude: exclude:




(gains)/losses n/a (29)

b) hedging gains (14) (78) b) hedging gains (57) (60)

ROW revenues excluding f/x and hedging impact

(Non-GAAP) $2,364 $2,970


(Non-GAAP) $2,142 $2,673

Y/Y % (Non-GAAP) 26% Y/Y % (Non-GAAP) 25%


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

($ in millions) Q2'10 Q3'10 ($ in millions) Q1'10 Q2'10UK Revenues (GAAP) $770 $840 UK Revenues (GAAP) $842 $770

exclude: exclude:


(gains)/losses n/a (24)


(gains)/losses n/a 47b) hedging gains (19) (11) b) hedging gains (10) (19)


GAAP) $751 $805


GAAP) $832 $798

Q/Q % (Non-GAAP) 7% Q/Q % (Non-GAAP) -4%

($ in millions) Q2'10 Q3'10 ($ in millions) Q1'10 Q2'10

ROW Revenues (GAAP) $2,762 $2,929 ROW Revenues (GAAP) $2,737 $2,762exclude: exclude:




(gains)/losses n/a 129b) hedging gains (60) (78) b) hedging gains - (60)


(Non-GAAP) $2,702 $2,866


(Non-GAAP) $2,737 $2,831

Q/Q % (Non-GAAP) 6% Q/Q % (Non-GAAP) 3%


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Table 1 - Reconciliations of non-GAAP costs and expensesto GAAP costs and expenses

($ in millions) Q3'09As a % of

Revenues (1) Q2'10As a % of

Revenues (1) Q3'10As a % of

Revenues (1)

Cost of revenues (GAAP) 2,226$ 37% 2,467$ 36% 2,552$ 35%Less: Stock-based compensation expense (15) (8) (8)

Cost of revenues (non-GAAP) 2,211$ 37% 2,459$ 36% 2,544$ 35%

Research and development (GAAP) 758$ 13% 898$ 13% 994$ 14%Less: Stock-based compensation expense (196) (202) (244)

Research and development (non-GAAP) 562$ 10% 696$ 10% 750$ 10%

Sales and marketing (GAAP) 498$ 8% 629$ 9% 661$ 9%Less: Stock-based compensation expense (62) (56) (75)

Sales and marketing (non-GAAP) 436$ 7% 573$ 8% 586$ 8%

General and administrative (GAAP) 389$ 7% 461$ 7% 532$ 7%Less: Stock-based compensation expense (45) (43) (53)

General and administrative (non-GAAP) 344$ 6% 418$ 7% 479$ 7%

Total costs and expenses (GAAP) 3,871$ 65% 4,455$ 65% 4,739$ 65%Less: Stock-based compensation expense (318) (309) (380)

Total costs and expenses (non-GAAP) 3,553$ 60% 4,146$ 61% 4,359$ 60%

(1) Percentages based on revenues of $5,945 million in Q3'09, $6,820 million in Q2'10 and $7,286 million in Q3'10.


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

($ in millions except per share amounts) Q3'09

Operating

Margin (1) Q2'10

Operating

Margin (1) Q3'10

Operating

Margin (1)

Income from operations (GAAP) 2,074$ 35% 2,365$ 35% 2,547$ 35%

Add: Stock-based compensation expense 318 309 380

Income from operations (non-GAAP) 2,392$ 40% 2,674$ 39% 2,927$ 40%

Net income (GAAP) 1,639$ 1,840$ 2,167$

Add: Stock-based compensation expense (ne t of tax) 245 239 295

Net income (non-GAAP) 1,884$ 2,079$ 2,462$

Net income per share - diluted (GAAP) 5.13$ 5.71$ 6.72$

Net income per share - diluted (non-GAAP) 5.89$ 6.45$ 7.64$

Shares used in per share calculation - diluted 320 322 322

(1) Percentages based on revenues of $5,945 million in Q3'09, $6,820 million in Q2'10 and $7,286 million in Q3'10.


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Q3 2010

Quarterly EarningsSummary

Google Earnings Slides (Q3, 2010)

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