Google Announces Fourth Quarter And Fiscal Year 2005 Results


MOUNTAIN VIEW, Calif. - January 31, 2006 - Google Inc. (NASDAQ: GOOG)
today announced financial results for the quarter and year ended
December 31, 2005.

"We are very pleased with our results for the fourth quarter as we
achieved excellent performance across our businesses," said Eric
Schmidt, CEO of Google.  "We generated significant revenue growth in
our core search and advertising business, driven by continued strength
in traffic and monetization.  We will continue to invest significantly
as we develop innovative new products and as we extend our core
technologies to new user access points and to different channels."

Q4 Financial Summary
Google reported revenues of $1.919 billion for the quarter ended
December 31, 2005, an increase of 86% compared to the fourth quarter of
2004 and an increase of 22% compared to the third quarter of 2005.
Google reports its revenues, consistent with GAAP, on a gross basis
without deducting traffic acquisition costs, or TAC.  In the fourth
quarter, TAC totaled $629 million, or 33% percent of advertising
revenues.

Google reports operating income, net income and earnings per share
(EPS) on a GAAP and non-GAAP basis.  The non-GAAP measures are
described below and reconciled to the corresponding GAAP measure in the
section below titled "About non-GAAP financial measures."
·       GAAP operating income for the fourth quarter was $570 million, or
29.7% of revenues.  This compares to GAAP operating income of $529
million, or 33.5% of revenues, in the third quarter.  Non-GAAP
operating income in the fourth quarter was $718 million, or 37.4% of
revenues. This compares to non-GAAP operating income of $596 million,
or 37.8% of revenues, in the third quarter.

·       GAAP net income for the fourth quarter was $372 million as compared
to $381 million in the third quarter.  Non-GAAP net income was $469
million, compared to $437 million in the third quarter.

·       GAAP EPS for the fourth quarter was $1.22 on 304 million diluted
shares outstanding, compared to $1.32 for the third quarter, on 290
million diluted shares outstanding.  Non-GAAP EPS was $1.54, compared
to $1.51 in the third quarter.

·       Our effective tax rate for the fourth quarter increased to 41.8%
this quarter, and to 31.6% for the year, above our previously announced
expectation of approximately 30% for the year.  Primarily because the
proportion of total expenses allocated to our international operations
was greater than we anticipated, more of our profits were taxed at a
higher domestic tax rate; this resulted in a greater effective tax rate
compared to our expectations.  We expect our effective tax rate for
2006 to be approximately 30%.

·       Non-GAAP operating income, non-GAAP net income, and non-GAAP EPS
are computed net of certain material items: stock-based compensation
(SBC), in-process research and development (IPR&D) charges, and also
Google's contribution to the Google Foundation of $90 million, which
the company made in the fourth quarter of 2005.  In the fourth quarter,
the charge related to stock-based compensation was $58 million as
compared to $46 million in the third quarter.  IPR&D charges were
immaterial in the fourth quarter of 2005, compared to $21 million in
the third quarter.  Tax benefits related to stock-based compensation
charges and the contribution to the Google Foundation have been
excluded from non-GAAP net income and non-GAAP EPS.  The tax benefit
related to SBC was $14 million in the fourth quarter and $11 million in
the third quarter, and the tax benefit related to the contribution to
the Google Foundation in the fourth quarter was $37 million.  Google
does not expect to make further donations to the Google Foundation for
the foreseeable future.  Reconciliations of non-GAAP measures to GAAP
operating income, net income, and EPS are included at the end of this
release.


Q4 Financial Highlights

Revenues - Google reported revenues of $1.919 billion for the quarter
ended December 31, 2005, representing an 86% increase over fourth
quarter 2004 revenues of $1.032 billion, and a 22% increase over third
quarter 2005 revenues of $1.578 billion.  Growth over the third quarter
was driven by expected seasonal strength in both traffic and
monetization.  Google reports its revenues, consistent with GAAP, on a
gross basis without deducting traffic acquisition costs, or TAC.

Google Sites Revenues - Google-owned sites generated revenues of $1.098
billion, or 57% of total revenues. This represents a 24% increase over
the third quarter revenues of $885 million.

Google Network Revenues - Google's partner sites generated revenues,
through AdSense programs, of $799 million, or 42% of total revenues.
This is an 18% increase over network revenues of $675 million generated
in the third quarter.

International Revenues - Revenues from outside of the United States
contributed 38% of total revenues, compared to 39% in the third quarter
of 2005 and 35% in the fourth quarter of 2004.  International revenues
reflected the unfavorable impact caused by the appreciation of the U.S.
dollar and stronger seasonal trends in the U.S. relative to the
international business.  Had foreign exchange rates remained constant
from the third quarter through the fourth quarter, our revenues would
have been $12 million, or 0.6%, higher.  Had foreign exchange rates
remained constant from 2004 through 2005, our revenues would have been
$40 million, or 2.1%, higher.

TAC - Traffic Acquisition Costs, the portion of revenues shared with
Google's partners, increased to $629 million in the fourth quarter.
This compares to TAC of $530 million in the third quarter.  TAC as a
percentage of advertising revenues decreased to 33.2% in the fourth
quarter from 34.0% in the third quarter, reflecting primarily the
continued shift in our revenue mix from Google network revenue to
Google-owned site revenue.

Operating Income - GAAP operating income in the fourth quarter was $570
million, or 29.7% of revenues.  This compares to GAAP operating income
of $529 million, or 33.5% of revenues, in the third quarter.  GAAP
operating income in the fourth quarter includes a contribution of $90
million to the Google Foundation.  Non-GAAP operating income in the
fourth quarter was $718 million, or 37.4% of revenues. This compares to
non-GAAP operating income of $596 million, or 37.8% of revenues, in the
third quarter.  The favorable shift in the mix of revenues to a higher
proportion of revenues from Google-owned sites was offset by
significant investments in all areas of the business.

Stock-Based Compensation - In the fourth quarter, the charge related
to stock-based compensation was $58 million as compared to $46 million
in the third quarter.  The increase in stock-based compensation was
primarily related to Google stock units issued in 2005.

Stock-based compensation in 2006 will be significantly greater than it
was in 2005 as a result of our adoption of SFAS 123R effective January
1, 2006. We currently anticipate that dilution related to all equity
grants to employees will be approximately 1% to 1.5% per year.

Net Income - GAAP net income for the fourth quarter was $372 million
as compared to $381 million in the third quarter.  Non-GAAP net income
was $469 million, compared to $437 million in the third quarter.  GAAP
EPS for the fourth quarter was $1.22 on 304 million diluted shares
outstanding, compared to $1.32 for the third quarter, on 290 million
diluted shares outstanding.  Non-GAAP EPS was $1.54, compared to $1.51
in the third quarter.

Income Taxes - Our effective tax rate for the fourth quarter
increased to 41.8% this quarter, and to 31.6% for the year, above our
previously announced expectation of approximately 30% for the year.
Because the proportion of total expenses allocated to our international
operations was greater than we anticipated, more of our profits were
taxed at a higher domestic tax rate; this resulted in a greater
effective tax rate compared to our expectations.  We expect our
effective tax rate for 2006 to be approximately 30%.

Cash Flow and Capital Expenditures - Net cash provided by operating
activities for the fourth quarter totaled $658 million as compared to
$647 million for the third quarter.  Free cash flow, an alternative
non-GAAP measure of liquidity, is defined as net cash provided by
operating activities less capital expenditures.  In the fourth quarter
we generated $413 million in free cash flow.  Capital expenditures in
the quarter were $245 million as compared to $293 million in the third
quarter, and primarily reflect purchases of production servers and
networking equipment and acquisitions of additional office space.

We will continue to invest significantly in capital expenditures in
2006.  We expect the majority of the investment to be focused on IT
infrastructure including servers, networking equipment, and data
centers, as well as real estate and campus facilities.

Adjusted EBITDA - Adjusted EBITDA is another non-GAAP measure of
liquidity and is defined as income before interest, taxes,
depreciation, amortization, SBC, IPR&D, and the contribution to the
Google Foundation.  Adjusted EBITDA increased to approximately $814
million in the fourth quarter from $672 million in the third quarter,
or 43% of revenues for both periods.

Reconciliations of free cash flow and adjusted EBITDA to net cash
provided by operating activities, the GAAP measure of liquidity, are
included at the end of this release.


Fiscal Year 2005 Financial Highlights

Revenue - For the year ended December 31, 2005, Google reported total
revenues of $6.139 billion, an increase of 92.5% over revenues of
$3.189 billion in 2004.  Revenue growth was attributable to both Google
sites and Google network sites.

Google Sites Revenues - Revenue from Google sites increased 112.5% in
2005 to $3.377 billion as traffic to Google sites continued to grow and
monetization improved.

Google Network Revenues - Revenue from the Google network increased
72.9% in 2005 to $2.688 billion due primarily to increased contribution
from existing partners as well as the addition of many new partners to
the AdSense for Search and AdSense for Content programs.

International Revenues - Revenues from outside of the United States
contributed 39% to total revenues for the year compared to 34% in 2004.

Operating Income - GAAP operating income in 2005 was $2.017 billion,
compared to $640 million in 2004.

Net Income - GAAP net income for 2005 increased to $1.465 billion,
from $399 million in 2004.

Cash Flow and Capital Expenditures - Net cash provided by operating
activities was $2.459 billion, compared to $977 million in 2004.
Capital expenditures in 2005 were $838 million, an increase of 163%
from $319 million in 2004.  Free cash flow was $1.621 billion, an
increase from $658 million in 2004.

Adjusted EBITDA - Adjusted EBITDA increased to $2.624 billion in 2005
from $1.280 billion in 2004.

Cash - As of December 31, 2005, Google had cash, cash equivalents and
marketable securities of $8.0 billion.

On a worldwide basis, Google employed 5,680 full time employees as of
December 31, 2005, up from 4,989 as of September 30, 2005 and 3,021 as
of December 31, 2004.

Webcast and conference call information

A live audio webcast of Google's fourth-quarter and fiscal year 2005
earnings release call will be available at
http://investor.google.com/news.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 at that site.  A replay of the call will be
available beginning at 7:30 PM (ET) through midnight Tuesday, February
7, 2006 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 4135040.

Forward looking statements

This press release contains forward-looking statements that involve
risks and uncertainties, including statements relating to our plans to
invest in our business, our expected stock-based compensation, the
expected dilution related to equity grants to our employees, our
anticipated effective tax rate for 2006, and planned capital
expenditures.  Actual results may differ materially from the results
predicted and reported results should not be considered as an
indication of future performance.  The potential risks and
uncertainties that could cause actual results to differ from the
results predicted include, among others, risks related to our
international operations, our hiring patterns, the amount of
stock-based compensation we issue to our service providers, the mix of
our US revenue as compared to our non-US revenue, the inherent
uncertain and complex nature of tax forecasting, the fact that we may
have exposure to greater than expected tax liabilities, and our need to
expend capital to accommodate the growth of the business, as well as
those risks and uncertainties included under the captions "Factors
That Could Affect Future Results" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," in
our report on Form 10-K for the year ended December 31, 2004 and our
report on Form 10-Q for the quarter ended September 30, 2005, which are
on file with the SEC and are available on our investor relations
website at investor.google.com and on the SEC's website at
www.sec.gov.  Additional information will also be set forth in our
annual report on Form 10-K for the year ended December 31, 2005, which
will be filed with the SEC in the first quarter of 2006.  All
information provided in this release and in the attachments is as of
January 31, 2006, and Google undertakes no duty to update this
information.

About non-GAAP financial measures
To supplement Google's consolidated financial statements presented in
accordance with GAAP, Google uses the following measures defined as
non-GAAP financial measures by the SEC: non-GAAP operating income,
non-GAAP net income, non-GAAP operating margins, non-GAAP EPS, free
cash flow, and adjusted EBITDA.  The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with GAAP.  For more information on these non-GAAP financial
measures, please see the tables captioned "Reconciliations of
non-GAAP results of operations measures to the nearest comparable GAAP
measures" and "Reconciliations of non-GAAP liquidity measures to
the nearest comparable GAAP measures" included at the end of this
release.

Google's management believes that these non-GAAP financial measures
provide meaningful supplemental information regarding our performance
and liquidity by excluding certain expenses and expenditures that may
not be indicative of our core business operating results.  Google
believes that both management and investors benefit from referring to
these non-GAAP financial measures in assessing Google's performance
and when planning, forecasting and analyzing future periods.  These
non-GAAP financial measures also facilitate management's internal
comparisons to Google's historical performance and liquidity and our
competitors' operating results.  Google believes these non-GAAP
financial measures are useful to investors in allowing for greater
transparency with respect to supplemental information used by
management in its financial and operational decision making.

Google has computed its non-GAAP liquidity measures using the same
consistent method from quarter to quarter and year to year.  Google
expects to use consistent methods for computation of other non-GAAP
financial measures introduced this quarter, including non-GAAP
operating income, non-GAAP operating margins, non-GAAP net income, and
non-GAAP EPS.  The accompanying tables have more details on the GAAP
financial measures that are most directly comparable to non-GAAP
financial measures and the related reconciliations between these
financial measures.