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Google Announces Second Quarter 2010 Financial Results

Google Announces Second Quarter 2010 Financial Results

 

MOUNTAIN VIEW, Calif. - July 15, 2010 - Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended June 30, 2010.

 

"Google had a strong second quarter," said Eric Schmidt, CEO of Google. "Solid growth in our core business and very strong growth in our emerging businesses drove 24% revenue growth year over year. We saw strength in every major product area, as more and more traditional brand advertisers embraced search advertising and as large advertisers increasingly ran integrated campaigns across search, display, and mobile. We feel confident about our future, and plan to continue to invest aggressively in our core areas of strategic focus."

 

Q2 Financial Summary

 

Google reported revenues of $6.82 billion for the quarter ended June 30, 2010, an increase of 24% compared to the second quarter of 2009. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the second quarter of 2010, TAC totaled $1.73 billion, or 26% of advertising revenues.

 

Google reports operating income, operating margin, net income, and earnings per share (EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures in the accompanying financial tables.

 

• GAAP operating income in the second quarter of 2010 was $2.37 billion, or 35% of revenues. This compares to GAAP operating income of $1.87 billion, or 34% of revenues, in the second quarter of 2009. Non-GAAP operating income in the second quarter of 2010 was $2.67 billion, or 39% of revenues. This compares to non-GAAP operating income of $2.17 billion, or 39% of revenues, in the second quarter of 2009.
• GAAP net income in the second quarter of 2010 was $1.84 billion, compared to $1.48 billion in the second quarter of 2009. Non-GAAP net income in the second quarter of 2010 was $2.08 billion, compared to $1.71 billion in the second quarter of 2009.
• GAAP EPS in the second quarter of 2010 was $5.71 on 322 million diluted shares outstanding, compared to $4.66 in the second quarter of 2009 on 319 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2010 was $6.45, compared to $5.36 in the second quarter of 2009.
• Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC and the related tax benefits. In the second quarter of 2010, the charge related to SBC was $309 million, compared to $293 million in the second quarter of 2009. The tax benefit related to SBC was $70 million in the second quarter of 2010 and $70 million in the second quarter of 2009. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.

 

Q2 Financial Highlights
Revenues - Google reported revenues of $6.82 billion in the second quarter of 2010, representing a 24% increase over second quarter 2009 revenues of $5.52 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.

 

Google Sites Revenues - Google-owned sites generated revenues of $4.50 billion, or 66% of total revenues, in the second quarter of 2010. This represents a 23% increase over second quarter 2009 revenues of $3.65 billion.

 

Google Network Revenues - Google's partner sites generated revenues, through AdSense programs, of $2.06 billion, or 30% of total revenues, in the second quarter of 2010. This represents a 23% increase from second quarter 2009 network revenues of $1.68 billion.

 

International Revenues - Revenues from outside of the United States totaled $3.53 billion, representing 52% of total revenues in the second quarter of 2010, compared to 53% in the first quarter of 2010 and 53% in the second quarter of 2009. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2010 through the second quarter of 2010, our revenues in the second quarter of 2010 would have been $176 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2009 through the second quarter of 2010, our revenues in the second quarter of 2010 would have been $24 million lower.

 

•Revenues from the United Kingdom totaled $770 million, representing 11% of revenues in the second quarter of 2010, compared to 13% in the second quarter of 2009.
•In the second quarter of 2010, we recognized a benefit of $79 million to revenues through our foreign exchange risk management program, compared to $124 million in the second quarter of 2009.
Paid Clicks - Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 15% over the second quarter of 2009 and decreased approximately 3% over the first quarter of 2010.

 

Cost-Per-Click - Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 4% over the second quarter of 2009 and increased approximately 2% over the first quarter of 2010.

 

TAC - Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $1.73 billion in the second quarter of 2010, compared to TAC of $1.45 billion in the second quarter of 2009. TAC as a percentage of advertising revenues was 26% in the second quarter of 2010, compared to 27% in the second quarter of 2009.

 

The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.46 billion in the second quarter of 2010. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $269 million in the second quarter of 2010.

 

Other Cost of Revenues - Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, increased to $735 million, or 11% of revenues, in the second quarter of 2010, compared to $655 million, or 12% of revenues, in the second quarter of 2009.

 

Operating Expenses - Operating expenses, other than cost of revenues, were $1.99 billion in the second quarter of 2010, or 29% of revenues, compared to $1.54 billion in the second quarter of 2009, or 28% of revenues.

 

Stock-Based Compensation (SBC) - In the second quarter of 2010, the total charge related to SBC was $309 million, compared to $293 million in the second quarter of 2009.

 

We currently estimate SBC charges for grants to employees prior to July 1, 2010 to be approximately $1.2 billion for 2010. This estimate does not include expenses to be recognized related to employee stock awards that are granted after June 30, 2010 or non-employee stock awards that have been or may be granted.

 

Operating Income - GAAP operating income in the second quarter of 2010 was $2.37 billion, or 35% of revenues. This compares to GAAP operating income of $1.87 billion, or 34% of revenues, in the second quarter of 2009. Non-GAAP operating income in the second quarter of 2010 was $2.67 billion, or 39% of revenues. This compares to non-GAAP operating income of $2.17 billion, or 39% of revenues, in the second quarter of 2009.

 

Interest and Other Income (Expense), Net - Interest and other income (expense), net increased to an income of $69 million in the second quarter of 2010, compared to an expense of $18 million in the second quarter of 2009.

 

Income Taxes - Our effective tax rate was 24% for the second quarter of 2010.

 

Net Income - GAAP net income in the second quarter of 2010 was $1.84 billion, compared to $1.48 billion in the second quarter of 2009. Non-GAAP net income was $2.08 billion in the second quarter of 2010, compared to $1.71 billion in the second quarter of 2009. GAAP EPS in the second quarter of 2010 was $5.71 on 322 million diluted shares outstanding, compared to $4.66 in the second quarter of 2009 on 319 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2010 was $6.45, compared to $5.36 in the second quarter of 2009.

 

Cash Flow and Capital Expenditures - Net cash provided by operating activities in the second quarter of 2010 totaled $2.09 billion, compared to $1.61 billion in the second quarter of 2009. In the second quarter of 2010, capital expenditures were $476 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the second quarter of 2010, free cash flow was $1.61 billion.

 

We expect to continue to make significant capital expenditures.

 

A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

 

Cash - As of June 30, 2010, cash, cash equivalents, and short-term marketable securities were $30.1 billion compared to $26.5 billion at March 31, 2010.

 

The increase in our cash, cash equivalents, and short-term marketable securities balance included cash collateral of $2.9 billion that we received in connection with our securities lending program, partially offset by $1.1 billion of tax payments and $704 million of shares repurchased related to the AdMob acquisition.

 

In addition, our Board of Directors has authorized debt financings of up to $3 billion through the issuance of commercial paper. In conjunction with this program, we established a $3 billion revolving credit facility. Net proceeds from the commercial paper program will be used for general corporate purposes. No amounts under either program were outstanding as of June 30, 2010.

 

Headcount - On a worldwide basis, Google employed 21,805 full-time employees as of June 30, 2010, up from 20,621 full-time employees as of March 31, 2010.

 

WEBCAST AND CONFERENCE CALL INFORMATION
A live audio webcast of Google's second quarter 2010 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

 

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