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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
– 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

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Quarterly Revenues
Q4’10 Y/Y Growth = 26%
Q4’10 Q/Q Growth = 16%
$8,500 8,440
$8,000
$7,500 7,286
2,495
$7,000 6,674 6,775 6,820
$6,500
5,945 2,199
5,541 5,701 5,509 5,523
$6,000
2,036 2,063
($ in millions)

2,044
$5,500
5,186 5,367
$5,000 1,801
1,693
1,680 1,638 1,684
$4,500 1,655
1,686
$4,000
$3,500
$3,000 5,672
4,833
$2,500 4,421 4,439 4,499
3,672 3,811 3,653 3,956
$2,000 3,530 3,693
3,400
$1,500
$1,000
$500
100 182 189 197 178 186 188 209 300 258 254 273
$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

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%
70%

60%

50%

40%

30%
49% 48% 49% 50% 48% 47% 47% 47% 47% 48% 48% 48%
20%

10%

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

US International
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Traffic Acquisition Costs
$2,100 40%
$2,000
$1,900
$1,800
35%
$1,700
$1,600
$1,500
29.2%
$1,400 28.4% 30%
27.9%
$1,300 26.9% 26.9% 27.2% 27.1% 26.6%
($ in millions)

26.4% 26.4%
$1,200 25.7% 25.3%
$1,100
25%
$1,000 2,069
$900 1,805
1,721 1,711 1,732
$800 1,559
1,486 1,474 1,495 1,483 1,436 1,453
$700 20%
$600
$500
$400
15%
$300
$200
$100
$0 10%
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 TAC as % of Advertising Revenues

5
Costs and Expenses
GAAP
($ in millions) Q4'09 Q3'10 Q4'10
Cost of Revenues $2,408 $2,552 $2,946
Percent of revenues 36% 35% 35%

Research & Development $736 $994 $1,051


Percent of revenues 11% 14% 12%

Sales & Marketing $583 $661 $902


Percent of revenues 9% 9% 11%

General & Administrative $466 $532 $559


Percent of revenues 7% 7% 7%

Total Costs & Expenses $4,193 $4,739 $5,458


Percent of revenues 63% 65% 65%

Non-GAAP
($ in millions) Q4'09 Q3'10 Q4'10
Cost of Revenues $2,402 $2,544 $2,901
Percent of revenues 36% 35% 34%

Research & Development $557 $750 $827


Percent of revenues 8% 10% 10%

Sales & Marketing $531 $586 $826


Percent of revenues 8% 8% 10%

General & Administrative $427 $479 $508


Percent of revenues 7% 7% 6%

Total Costs & Expenses $3,917 $4,359 $5,062


Percent of revenues 59% 60% 60%

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) Q4'09 Q3'10 Q4'10
Income from Operations $ 2,481 $ 2,547 $ 2,982

Operating Margin 37% 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 $ 2,757 $ 2,927 $ 3,378

Operating Margin 41% 40% 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

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Free Cash Flow

($ in millions) 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

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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.

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Revenues by Geography

($ in millions) Q4'09 Q3'10 Q4'10

United States $3,155 $3,517 $4,055

United Kingdom $772 $840 $878

Rest of the World $2,747 $2,929 $3,507

Total Revenues $6,674 $7,286 $8,440

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

($ in millions) Q4'09 Q4'10 ($ in millions) Q3'09 Q3'10


UK revenues (GAAP) $772 $878 UK revenues (GAAP) $765 $840
exclude: exclude:

a) f/x impact on Q4'10 revenues using Q4'09 a) f/x impact on Q3'10 revenues using Q3'09
rates (gains)/losses n/a 26 rates (gains)/losses n/a 50

b) hedging gains (8) (2) b) hedging gains (25) (11)

UK revenues excluding f/x and hedging impact UK revenues excluding f/x and hedging impact
(Non-GAAP) $764 $902 (Non-GAAP) $740 $879

Y/Y % (Non-GAAP) 18% 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 a) f/x impact on Q3'10 revenues using Q3'09
rates (gains)/losses n/a 106 rates (gains)/losses n/a 119

b) hedging gains - (23) b) hedging gains (14) (78)

ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,747 $3,590 (Non-GAAP) $2,364 $2,970

Y/Y % (Non-GAAP) 31% Y/Y % (Non-GAAP) 26%

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

($ in millions) Q3'10 Q4'10 ($ in millions) Q2'10 Q3'10


UK Revenues (GAAP) $840 $878 UK Revenues (GAAP) $770 $840
exclude: exclude:

a) f/x impact on Q4'10 revenues using Q3'10 a) f/x impact on Q3'10 revenues using Q2'10
rates (gains)/losses n/a (23) rates (gains)/losses n/a (24)
b) hedging gains (11) (2) b) hedging gains (19) (11)
UK revenues excluding f/x and hedging impact UK revenues excluding f/x and hedging impact
(Non-GAAP) $829 $853 (Non-GAAP) $751 $805

Q/Q % (Non-GAAP) 3% Q/Q % (Non-GAAP) 7%

($ in millions) Q3'10 Q4'10 ($ in millions) Q2'10 Q3'10


ROW Revenues (GAAP) $2,929 $3,507 ROW Revenues (GAAP) $2,762 $2,929
exclude: exclude:

a) f/x impact on Q4'10 revenues using Q3'10 rates a) f/x impact on Q3'10 revenues using Q2'10 rates
(gains)/losses n/a (178) (gains)/losses n/a 15
b) hedging gains (78) (23) b) hedging gains (60) (78)
ROW revenues excluding f/x and hedging impact ROW revenues excluding f/x and hedging impact
(Non-GAAP) $2,851 $3,306 (Non-GAAP) $2,702 $2,866

Q/Q % (Non-GAAP) 16% Q/Q % (Non-GAAP) 6%

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Table 1 - Reconciliations of non-GAAP costs and expenses
to GAAP costs and expenses
As a % of As a % of As a % of
($ in millions) Q4'09 Revenues (1) Q3'10 Revenues (1) Q4'10 Revenues (1)
Cost of revenues (GAAP) $ 2,408 36% $ 2,552 35% $ 2,946 35%
Less: Stock-based compensation expense (6) (8) (45)
Cost of revenues (non-GAAP) $ 2,402 36% $ 2,544 35% $ 2,901 34%

Research and development (GAAP) $ 736 11% $ 994 14% $ 1,051 12%
Less: Stock-based compensation expense (179) (244) (224)
Research and development (non-GAAP) $ 557 8% $ 750 10% $ 827 10%

Sales and marketing (GAAP) $ 583 9% $ 661 9% $ 902 11%


Less: Stock-based compensation expense (52) (75) (76)
Sales and marketing (non-GAAP) $ 531 8% $ 586 8% $ 826 10%

General and administrative (GAAP) $ 466 7% $ 532 7% $ 559 7%


Less: Stock-based compensation expense (39) (53) (51)
General and administrative (non-GAAP) $ 427 7% $ 479 7% $ 508 6%

Total costs and expenses (GAAP) $ 4,193 63% $ 4,739 65% $ 5,458 65%
Less: Stock-based compensation expense (276) (380) (396)
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.

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

Operating Operating Operating


($ in millions except per share amounts) Q4'09 Margin (1) Q3'10 Margin (1) Q4'10 Margin (1)
Income from operations (GAAP) $ 2,481 37% $ 2,547 35% $ 2,982 35%
Add: Stock-based compensation expense 276 380 396
Income from operations (non-GAAP) $ 2,757 41% $ 2,927 40% $ 3,378 40%

Net income (GAAP) $ 1,974 $ 2,167 $ 2,543


Add: Stock-based compensation expense (net of tax) 214 295 307
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 322 322 326

(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.

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Q4 2010
Quarterly Earnings
Summary