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GOOG Earnings are In: Big. Big. Big.

By - April 21, 2005

Revenues up 93% year over year. Cash from operations was $516 million in the quarter. Crashing on the final, no really, final edit of the manuscript. So here is the story from Reuters.

UPDATE: Safa has raised his price target to $275 on the earnings results.

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GOOGLE ANNOUNCES RECORD REVENUES FOR THE FIRST QUARTER OF FISCAL 2005

MOUNTAIN VIEW, Calif. – April 21, 2005 – Google Inc. (Nasdaq: GOOG)

today announced financial results for the quarter ended March 31, 2005.

“This was a very strong quarter for Google. We continue to execute

well and we have been able to take full advantage of the growth in

online advertising” said Eric Schmidt, Google chief executive

officer. “In addition, we performed well across our operations with

our engineering and product teams delivering dozens of new products and

features for Google users around the world.”

· Google reported record revenues of $1.256 billion for the quarter

ended March 31, 2005, up 93% year over year. Google reports its

revenues, consistent with GAAP, on a gross basis without deducting

traffic acquisition costs or TAC, the portion of revenues shared with

partners.

· Income from operations, on a GAAP basis, was $443 million, or 35.2%

of revenues for the quarter ended March 31, 2005 compared to $155

million or 23.8% of revenues for the first quarter of 2004.

· Income from operations includes a $49 million non-cash, stock-based

compensation charge compared to a $76 million non-cash, stock-based

compensation charge in the prior year’s first quarter.

· Net income on a GAAP basis for the quarter ended March 31, 2005 was

computed based on the following income statement or condensed income

statement line items. Revenues of $1.256 billion less TAC of $462

million, less both other costs and expenses before stock-based

compensation of $303 million and stock-based compensation of $49

million, increased by other income of $14 million and then reduced by a

provision for income taxes of $87 million.

· Net income on a GAAP basis in the first quarter of 2005 was $369

million or $1.29 per share on a basis of a diluted 286.6 million

weighted average shares outstanding. This compared to net income for

the first quarter of 2004 of $64 million or $0.24 per share on a basis

of a diluted 264.2 million weighted average shares outstanding.

· Some Wall Street analysts use non-GAAP measures to analyze our

operating results. For instance, they may subtract TAC of $462 million

from revenues of $1.256 billion to arrive at a net revenues amount.

Also, certain analysts may arrive at net income before stock-based

compensation by subtracting traffic acquisition costs of $462 million,

other costs and expenses before stock-based compensation of $303

million, adding back other income of $14 million and subtracting our

provision for income taxes of $87 million from revenues of $1.256

billion.

· Net cash provided by operating activities for the three months

ended March 31, 2005 totaled $530 million as compared to $208 million

for the first quarter of 2004, an increase of 155%.

· Adjusted EBITDA, which is an alternative measure of liquidity to

GAAP net cash provided by operating activities (and is defined as

income before interest, taxes, depreciation, amortization, the non-cash

stock-based compensation charge and in-process R&D), increased by $293

million or 115% to $ 548 million (or 44% of revenues) in the first

quarter of 2005 from $255 million in the first quarter of 2004 (or 39%

of revenues).

Financial Highlights

Revenues – Revenues in the quarter totaled a record $1.256 billion,

representing a 22% increase over the fourth quarter of 2004 and a 93%

year-over-year increase. This revenue increase reflects strong traffic

and monetization growth in the quarter as well as advertisers’

growing recognition of the Internet as an effective advertising medium.

Google-Sites Revenues – Google-owned sites generated $657 million or

52% of total revenues. This represents an increase of 116% over the

first quarter of 2004.

The Google Network – Revenues generated on Google’s partner sites,

through AdSense programs, contributed $584 million, or 47% of total

revenues, a 75% increase over the Network revenues generated in the

same quarter last year.

TAC – Traffic Acquisition Costs, the portion of revenues shared with

Google’s partners, increased to $462 million. This compares to total

payments to partners of $271 million in the first quarter of 2004.

Income from Operations – Income from operations in the first quarter,

on a GAAP basis, was $443 million or 35.2% of revenues, and included a

non-cash charge of $49 million for stock-based compensation. This

compares to income from operations of $155 million or 23.8% of revenues

in the first quarter of 2004, when the stock-based compensation charge

was $76 million. This improvement in operating margins was primarily

due to decreases in both stock-based compensation expense and TAC as a

percentage of revenues.

Income Taxes – Google recorded a provision for income taxes of $87

million in the first quarter of 2005, an effective tax rate of 19% as

compared to a $92 million provision for income taxes and a 59%

effective tax rate in the first quarter of 2004. The provision for

income taxes in this year’s first quarter was reduced by $49 million

related to ISO disqualifying dispositions. The effective tax rate for

the remainder of 2005 is expected to be less than 30%. However if

future revenues recognized by Google’s Irish subsidiary are not as

proportionately great as expected, Google’s effective tax rate will

be higher than expected.

Net Income – Net income on a GAAP basis increased to $369 million or

29.4% of revenues in the first quarter of 2005 as compared to $64

million or 9.8% of revenues in the first quarter of 2004. Earnings on

a diluted per share basis were $1.29 in the first quarter of 2005 as

compared to $0.24 in the first quarter of 2004.

Cash Flow – Net cash provided by operating activities increased 155%

to $530 million for the three months ended March 31, 2005 from $208

million in the three months ended March 31, 2004. Free cash flow is an

alternative non-GAAP measure of liquidity to GAAP net cash provided by

operating activities and is calculated as operating cash flows less

capital expenditures. Capital expenditures were $142 million in the

three months ended March 31, 2005 as compared to $86 million in the

three months ended March 31, 2004. Free cash flow for the three

months ended March 31, 2005 totaled approximately $387 million as

compared to $122 million for the same period in 2004, an increase of

217%.

Adjusted EBITDA – Adjusted EBITDA is defined as income before

interest, taxes, depreciation, amortization, the non-cash stock-based

compensation charge and in-process R&D. It is another alternative

measure of liquidity to GAAP net cash provided by operating activities.

Adjusted EBITDA increased to approximately $548 million in Q1 2005 (or

44% of revenues) from $255 million (or 39% of revenues) in Q1 2004.

The reconciliations of free cash flow and adjusted EBITDA to net cash

provided by operating activities, the GAAP measure of liquidity, is set

forth at the back of this release.

Cash – As of March 31, 2005, Google had a cash, cash equivalents and

marketable securities balance of $2.507 billion.

On a worldwide basis, Google employed 3,482 full time employees as of

March 31, 2005, up from 3,021 as of December 31, 2004.

Webcast and conference call information

A live audio webcast of Google’s first-quarter earnings release call

will be available at http://investor.google.com/news.html. The call

begins today at 1:30 p.m. (PDT)/ 4:30 (EDT). 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 at that site. A replay

of the call will be available beginning at 7:30 PM EDT through midnight

Monday, May 2, by calling (888) 203-1112 in the United States or (719)

457-0820 for calls from outside the United States. The required

confirmation code for the replay is 1993546.

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