Q2 2008 Quarterly EarningsQuarterly Earnings

Summary

Second Quarter 2008 HighlightsSecond Quarter 2008 Highlights

• Revenue growth of 39% Y/Y and 3% Q/QGoogle properties revenue growth of 42% Y/Y and 4% Q/Q– Google properties revenue growth of 42% Y/Y and 4% Q/Q

– Network revenues increased 22% Y/Y and decreased 2% Q/Q

– Growth in international markets continued to be strong, with $2.8 billion in Q2 international revenuerevenue

• Operational Highlights– Improvements in search quality remain key focus

– Continued ads quality initiatives to show users better, more relevant ads

– Increasing value for advertisers and publishers with broader and deeper solutions

A i iti f D bl Cli k i G l th l di di l d l tf• Acquisition of DoubleClick gives Google the leading display ad platform

– Strong Apps traction and addition of functionality to Google Apps suite of products

• Exercising operational discipline while investing in long-term

2

g p p g gopportunities

Quarterly RevenueQuarterly Revenue

$5,000

$5,500Q2’08 Y/Y Growth = 39%Q2’08 Q/Q Growth = 3%

4 827

5,1865,367

1,636

1,6861,655

$4,000

$4,500

,

3,6643,872

4,231

4,827

in m

illio

ns

1,3451,352

1,455

1,198$2,500

$3,000

$3,500

2,2542,456

2,690

3,205

$

3,530

630675

799928

2,282 2,4862,735

3,1223,400

1 977

1,037997

$1,500

$2,000

1,3841,578

1,9192,254

1,257

737

584630

1,098657

1,2971,626

1,977

885

1,432

$0

$500

$1,000

Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08

3

Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08

Google.com Network Licensing and Other

U S vs International RevenueU.S. vs. International Revenue

$5 000

$5,500

4 827

5,1865,367

$4,000

$4,500

$5,000

3,6643,872

4,231

4,827

48% 52%51%

n m

illio

ns

$2,500

$3,000

$3,500

2,2542,456

2,690

%

44%

3,20547%

48% 48%

$ in

$1 000

$1,500

$2,000

1,3841,578

1,9192,254

39%39%

38%42%

42%44%

1,257

39% 53% 52%52% 52% 48%49%

$0

$500

$1,000

Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08

61% 61% 62% 58% 58% 56% 56% 39%

61%

53% 52%

4

Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08

US International

Traffic Acquisition Costs

1,440 1,486 1,474

36.1%37.2%

$1,400$1,500 40%

Traffic Acquisition Costs

976

1,2211,1481,125

31 0%

33.2%32.5%32.3%34.0%

31 0%$1,000$1,100$1,200$1,300$ ,

30%

35%

825

530

629723

78528.4%29.2%30.3%

30.7%31.0% 31.0%29.9% 29.1%

$600$700$800$900

$1,000

25%

30%

n m

illio

ns

462 494 530

$200$300$400$500$600

15%

20%$ in

$0$100$200

Q1'05

Q2'05

Q3'05

Q4'05

Q1'06

Q2'06

Q3'06

Q4'06

Q1'07

Q2'07

Q3'07

Q4'07

Q1'08

Q2'08

10%

5

Q Q Q Q Q Q Q Q Q Q Q Q Q Q

TAC TAC as % of Advertising Revenues

Costs and ExpensesCosts and Expenses

GAAP$Millions Q2'07 Q1'08 Q2'08$Millions Q2 07 Q1 08 Q2 08Cost of Revenues $1,560 $2,111 $2,148

Percent of revenues 40% 41% 40%

Research & Development $532 $673 $682Percent of revenues 14% 13% 13%

Sales & Marketing $356 $447 $485P t f 9% 9% 9%Percent of revenues 9% 9% 9%

General & Administrative $319 $409 $474Percent of revenues 8% 7% 9%

Total Costs & Expenses $2,767 $3,640 $3,789Percent of revenues 71% 70% 71%

Non GAAPNon-GAAP$Millions Q2'07 Q1'08 Q2'08Cost of Revenues $1,552 $2,102 $2,139

Percent of revenues 40% 41% 40%

Research & Development $375 $479 $495Percent of revenues 10% 9% 10%Percent of revenues 10% 9% 10%

Sales & Marketing $320 $404 $442Percent of revenues 8% 8% 8%

General & Administrative $279 $374 $440Percent of revenues 7% 7% 8%

Total Costs & Expenses $2,526 $3,359 $3,516Percent of revenues 65% 65% 66%

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

Percent of revenues 65% 65% 66%

ProfitabilityProfitability

GAAP$Millions Q2'07 Q1'08 Q2'08Income from Operations 1,105$ 1,546$ 1,578$ Operating Margin 29% 30% 29%

Net Income 925$ 1,307$ 1,247$ EPS (diluted) $2.93 $4.12 $3.92

Non-GAAP$Milli Q2'07 Q1'08 Q2'08$Millions Q2'07 Q1'08 Q2'08Income from Operations 1,346$ 1,827$ 1,851$ Operating Margin 35% 35% 34%

$ $ $

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

Net Income 1,124$ 1,537$ 1,472$ EPS (diluted) 3.56$ 4.84$ 4.63$

7

pp g pmeasures to the nearest comparable GAAP measures

Free Cash FlowFree Cash Flow

$Millions Q2'07 Q1'08 Q2'08N t h id d bNet cash provided by operating activities $1,230 $1,780 $1,766

L h f tLess purchases of property and equipment ($575) ($842) ($697)

Free cash flow (Non-GAAP) $655 $938 $1,069

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

$Millions Q2'07As a % of

Revenues (1) Q1'08As a % of

Revenues (1) Q2'08As a % of

Revenues (1)Cost of Revenues (GAAP) 1 560$ 40% 2 111$ 41% 2 148$ 40%Cost of Revenues (GAAP) 1,560$ 40% 2,111$ 41% 2,148$ 40%Less: Stock-based compensation (8) (9) (9) Cost of Revenues (non-GAAP) 1,552$ 40% 2,102$ 41% 2,139$ 40%

Research and development (GAAP) 532$ 14% 673$ 13% 682$ 13%Less: Stock-based compensation (157) (194) (187) Research and development (non GAAP) 375$ 10% 479$ 9% 495$ 10%Research and development (non-GAAP) 375$ 10% 479$ 9% 495$ 10%

- Sales and marketing (GAAP) 356$ 9% 447$ 9% 485$ 9%Less: Stock-based compensation (36) (43) (43) Sales and marketing (non-GAAP) 320$ 8% 404$ 8% 442$ 8%

General and administrati e (GAAP) 319$ 8% 409$ 7% 474$ 9%General and administrative (GAAP) 319$ 8% 409$ 7% 474$ 9%Less: Stock-based compensation (40) (35) (34) General and administrative (non-GAAP) 279$ 7% 374$ 7% 440$ 8%

Total costs and expenses (GAAP) 2,767$ 71% 3,640$ 70% 3,789$ 71%Less: Stock-based compensation (241) (281) (273) Total costs and expenses (non-GAAP) 2,526$ 65% 3,359$ 65% 3,516$ 66%

(1) Percentages based on GAAP revenues of $3,872 million in Q2 '07, $5,186 million in Q1 '08 and $5,367 million in Q2 '08.

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

Figures in millions except per share amounts Q2'07

Operating Margin

(1) Q1'08

Operating Margin

(1) Q2'08

Operating Margin

(1)Income from operations (GAAP) 1,105$ 29% 1,546$ 30% 1,578$ 29%Add St k b d ti 241 281 273Add: Stock-based compensation 241 281 273

Income from operations (non-GAAP) 1,346$ 35% 1,827$ 35% 1,851$ 34%

Net income (GAAP) 925$ 1,307$ 1,247$ Add: Stock-based compensation (net of tax) 199 230 225

Net income (non-GAAP) 1,124$ 1,537$ 1,472$Net income (non GAAP) 1,124$ 1,537$ 1,472$

Net income per share - diluted (GAAP) $2.93 $4.12 $3.92Net income per share - diluted (non-GAAP) $3.56 $4.84 $4.63Shares used in per share calculation - diluted 315 317 318

(1) Percentages based on GAAP revenues of $3 872 million in Q2 '07 $5 186 million in Q1 '08 and $5 367 million in Q2 '08(1) Percentages based on GAAP revenues of $3,872 million in Q2 '07, $5,186 million in Q1 '08 and $5,367 million in Q2 '08.

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Q2 2008 Quarterly EarningsQuarterly Earnings

Summary