Google reported strong financial results for Q4 2006 with 67% year-over-year revenue growth. Revenue increased 19% sequentially led by growth in international markets like Germany and France. Costs and expenses grew at a slower rate than revenue. As a result, net income increased 40% year-over-year while operating margins expanded. Going forward, Google will continue investing in growth areas like international expansion and mobile partnerships.

1. Q4 2006 Earnings
Conference Call

2. Fourth Quarter 2006 Highlights
• Revenue growth of 67% Y/Y and 19% Q/Q
– Strong holiday season led to healthy traffic growth
– International revenues grew 20% sequentially; particular strength in Germany and
France
– UK (15% of total revenue) demonstrated typical seasonal patterns, including
relative softness in the travel and finance verticals
• Checkout acceptance and adoption exceeded expectations
• Signed key mobile partnerships – Apple, Samsung, China Mobile
• Closed acquisition of YouTube
• Continued to invest in employees and infrastructure
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3. Quarterly Revenue
$3,500 Q4’06 Y/Y Growth = 67%
3,205
Q4’06 Q/Q Growth = 19%
$3,000
2,690
$ in millions
1,198
2,456
$2,500
2,254
1,037
1,919
$2,000
997
928
1,578
1,384 799
$1,500
1,257
675
630 1,977
$1,000 584
1,626
1,432
1,297
1,098
$500 885
737
657
$0
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06
Google.com Network Licensing and Other
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4. U.S. vs. International Revenue
$3,500
Q4’06 Domestic = 56% of total revenue
3,205
Q4’06 International = 44% of total revenue
$3,000
2,690
$ in millions
2,456
$2,500
2,254
44%
44%
1,919
$2,000
42%
1,578 42%
1,384
$1,500
38%
1,257
39%
39%
$1,000
39%
$500
58% 58%
61% 61% 61% 56%
62% 56%
$0
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06
US International
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5. Traffic Acquisition Costs
976
$1,000 40%
37.2%
36.1%
$900
825
34.0% 35%
33.2% 723 785
$800
32.5%
$700 32.3%
30%
629 31.0% 30.7%
$ in millions
$600
530
494
462
$500 25%
$400
20%
$300
$200
15%
$100
$0 10%
Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06
TAC TAC as % of Advertising Revenues
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6. Costs and Expenses
GAAP
$Millions Q4'05 Q3'06 Q4'06
Costs of Revenues $777.0 $1,048.7 $1,283.1
Percent of revenues 40.5% 39.0% 40.0%
Research & Development $189.9 $312.6 $386.8
Percent of revenues 9.9% 11.6% 12.1%
Sales & Marketing $162.6 $207.0 $255.2
Percent of revenues 8.5% 7.7% 8.0%
General & Administrative* $219.9 $190.0 $219.8
Percent of revenues 11.5% 7.1% 6.9%
Total Costs & Expenses $1,349.4 $1,758.3 $2,144.9
Percent of revenues 70.4% 65.4% 67.0%
Non-GAAP
$Millions Q4'05 Q3'06 Q4'06
Costs of Revenues $775.3 $1,046.6 $1,272.2
Percent of revenues 40.4% 38.9% 39.7%
Research & Development $157.1 $250.9 $304.7
Percent of revenues 8.2% 9.3% 9.5%
Sales & Marketing $154.7 $192.3 $240.7
Percent of revenues 8.1% 7.1% 7.5%
General & Administrative $114.1 $168.7 $192.9
Percent of revenues 5.9% 6.3% 6.0%
Total Costs & Expenses $1,201.2 $1,658.5 $2,010.5
Percent of revenues 62.6% 61.6% 62.7%
* Q405 includes $90M contribution to Google Foundation
Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to
GAAP costs and expenses
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7. Profitability
GAAP
$Millions Q4'05 Q3'06 Q4'06
Income from Operations $569.6 $931.3 $1,060.6
Operating Margin 29.7% 34.6% 33.1%
Net Income $372.2 $733.4 $1,030.7
EPS (diluted) $1.22 $2.36 $3.29
Non-GAAP
$Millions Q4'05 Q3'06 Q4'06
Income from Operations $717.8 $1,031.2 $1,195.0
Operating Margin 37.4% 38.3% 37.3%
Net Income $469.5 $812.3 $997.3
EPS (diluted) $1.54 $2.62 $3.18
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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8. Free Cash Flow
$Millions Q4'05 Q3'06 Q4'06
Net cash provided by
operating activities $658.4 $1,004.3 $910.8
Less purchases of property
and equipment $245.8 $492.2 $366.6
Free cash flow (Non-GAAP) $412.6 $512.1 $544.2
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9. Summary
• Google’s continued excellence and market leadership in core search
and ads drove strong results in Q4
• We continue to invest in our international operations, which
represented an increasing portion of total revenues on a year-over-
year basis
• Partnerships remain a key strategic initiative
• Innovation for the user and strengthening the Google ecosystem are
overriding goals
• Investments in infrastructure and people are a competitive advantage
and key factor in our success; we continue to invest aggressively for
the long term
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10. Table 1 - Reconciliations of non-GAAP costs and expenses
to GAAP costs and expenses
As a % of As a % of As a % of
Revenues (1) Revenues (1) Revenues (1)
$Millions Q4'05 Q3'06 Q4'06
Cost of Revenues (GAAP) $ 777.0 40.5% $ 1,048.7 39.0% $ 1,283.1 40.0%
Less: Stock-based compensation (1.7) - (2.1) - (10.9) -
Cost of Revenues (non-GAAP) $ 775.3 40.4% $ 1,046.6 38.9% $ 1,272.2 39.7%
Research and development (GAAP) $ 189.9 9.9% $ 312.6 11.6% $ 386.8 12.1%
Less: Stock-based compensation (32.8) - (61.7) - (82.1) -
Research and development (non-GAAP) $ 157.1 8.2% $ 250.9 9.3% $ 304.7 9.5%
Sales and marketing (GAAP) $ 162.6 8.5% $ 207.0 7.7% $ 255.2 8.0%
Less: Stock-based compensation (7.9) - (14.7) - (14.5) -
Sales and marketing (non-GAAP) $ 154.7 8.1% $ 192.3 7.1% $ 240.7 7.5%
General and administrative (GAAP) $ 219.9 11.5% $ 190.0 7.1% $ 219.8 6.9%
Less: Google Foundation Contribution (90.0) - - - - -
Less: Stock-based compensation (15.8) - (21.3) - (26.9) -
General and administrative (non-GAAP) $ 114.1 5.9% $ 168.7 6.3% $ 192.9 6.0%
Total costs and expenses (GAAP) $ 1,349.4 70.4% $ 1,758.3 65.4% $ 2,144.9 67.0%
Less: Google Foundation Contribution (90.0) - - - - -
Less: Stock-based compensation (58.2) - (99.8) - (134.4) -
Total costs and expenses (non-GAAP) $ 1,201.2 62.6% $ 1,658.5 61.6% $ 2,010.5 62.7%
(1) Percentages based on GAAP revenues of $1,919 million in Q4 '05, $2,690 million in Q3 '06 and $3,205 million in Q4 '06
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11. Table 2 - Reconciliations of non-GAAP results of operations
measures to the nearest comparable GAAP measures
As a % of As a % of As a % of
Revenues (1) Revenues (1) Revenues (1)
$Millions except per share amounts Q4'05 Q3'06 Q4'06
Income from operations (GAAP) $ 569.6 29.7% $ 931.3 34.6% $ 1,060.6 33.1%
Add: Stock-based compensation 58.2 - 99.9 - 134.4 -
Add: Google Foundation contribution 90.0 - - - - -
Income from operations (non-GAAP) $ 717.8 37.4% $ 1,031.2 38.3% $ 1,195.0 37.3%
Net income (GAAP) $ 372.2 19.4% $ 733.4 27.3% $ 1,030.7 32.2%
Add: Stock-based compensation (net of tax) 44.3 - 78.9 - 99.8 -
Add: Google Foundation contribution (net of tax) 53.0
Less: Advanced Pricing Agreement and R&D credit - - - - (133.2) -
Net income (non-GAAP) $ 469.5 24.5% $ 812.3 30.2% $ 997.3 31.1%
Net income per share - diluted (GAAP) $1.22 $2.36 $3.29
Net income per share - diluted (non-GAAP) $1.54 $2.62 $3.18
Shares used in per share calculation - diluted 304 311 313
(1) Percentages based on GAAP revenues of $1,919 million in Q4 '05, $2,690 million in Q3 '06 and $3,205 million in Q4 '06
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12. Q4 2006 Earnings
Conference Call