COMPANY UPDATE | COMMENT

120.00

125 WEEKS
Rel. S&P 500

03SEP10 - 17JAN13
HI-05OCT12 123.40
LO/HI DIFF 40.35%

110.00

CLOSE

112.80

100.00
90.00
2010
2011
2012
S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LO-24JUN11 87.92

JANUARY 18, 2013

Google Inc. (NASDAQ: GOOG)

Q4 Preview and "Cheat Sheet"

HI-05OCT12 774.38
LO/HI DIFF 72.85%

760.00
720.00
680.00
640.00
600.00

CLOSE

711.32

560.00
520.00

Outperform
Average Risk
Price:

480.00

711.32

LO-03SEP10 448.00
20000

PEAK VOL. 31256.6

VOLUME 11023.6

10000

Shares O/S (MM):

Dividend:
Float (MM):
Debt to Cap:

333.3
0.00
264.0
NM

Price Target:
Implied All-In Return:
Market Cap (MM):
Yield:
Tr. 12 ROE:
Avg. Daily Volume (MM):

820.00
15%
237,083
0.0%
NM
2.50

RBC Capital Markets, LLC

4Q12 Earnings Preview

Mark Mahaney (Analyst)

(415) 633-8608; mark.mahaney@rbccm.com

GOOG will report Q4 results on Tuesday, January 22nd. Were looking for
consolidated Gross Revenue of $15.66B, Net Revenue of $12.40B, Non-GAAP
Operating Income of $4.22B and Non-GAAP EPS of $10.22. In Core Google, we
are expecting Gross Revenue of $12.75B (up 21% Y/Y), Net Revenue of $9.49B
(up 17% Y/Y). Finally, for MMI, we expect a $2.03B Revenue contribution from
the Mobile Device segment and $870M from the Home segment. Note that
consensus estimates for consolidated Gross Revenue of $15.39B and Net revenue
of $12.40B are slightly below to in-line with our estimates, but that consensus
EPS of $10.61 is above our projection.

Andre Sequin (Analyst)

(212) 618-7688; andre.sequin@rbccm.com
Brian Peak (Associate)
(212) 548-3183; brian.peak@rbccm.com
Kevin Potterton (Associate)
(212) 428-6489; kevin.potterton@rbccm.com
FY Dec
Revenue (B)
EBITDA (MM)
EPS (Op) - FD
P/E
Revenue (B)
2011
2012
2013
EBITDA (MM)
2011
2012
2013
EPS (Op) - FD
2011
2012
2013

2011A 2012E 2013E

29.1
41.5
51.1
16,067.0 18,647.2 21,031.4
36.06
39.44
43.43
19.7x
18.0x
16.4x
Q1
6.5A
8.1A
12.2E

Q4
8.1A
12.4E
13.8E

The Read-Thrus. eBays very consistent Q4 results and its outlook for improved
U.S. and European end-market demand should be modest positives for Googles
Search Revenue.

3,629.0A 3,771.0A 4,121.0A 4,546.0A

4,456.0A 4,531.0A 4,628.0A 5,032.2E
4,916.1E 4,975.6E 5,351.0E 5,788.7E

Our GOOG Q4 Cheat Sheet. On p.3 we have included a one-page grid of what
we would view as Positive, Neutral, and Negative results for GOOG on key P&L
and Metrics lines.

8.08A
10.08A
10.30E

Q2
6.9A
9.6A
12.8E

8.74A
10.12A
10.33E

Q3
7.5A
11.3A
12.3E

Paid Click & CPC Metrics. We are expecting approx. 25% Y/Y growth in paid
clicks (down from 33% in Q3 and 42% in Q2) and a high single-digit decline in
CPCs (vs. (15%) in Q3 and (16%) in Q2.) Wed argue that the Markets biggest
Fear Factor is CPCs, given overall concerns that Mobile Device Internet usage is
undermining Googles monetization efforts.

9.72A
9.03A
10.88E

9.50A
10.22E
11.90E

All values in USD unless otherwise noted.

Key Factors To Focus On. Top and bottom line Q4 metrics, especially in Core
Google, will be the focus, but we will also look for commentary on: 1) trends in
paid click growth and CPC growth as an indicator of the health of the core Search
business; 2) additional details on the sale of MMI Home segment and any
commentary on the future of the Mobility segment; and 3) any details around
sales of Nexus devices and their effect on operating margins.
We Reiterate Our Outperform Rating, $820 Price Target. GOOG is one of
our top 3 picks headed into 2013. Overhangs remain significant for GOOG and
include challenges associated with MMI integration, potential European
regulatory actions, and Mobile Monetization (both CPC and TAC). We continue
to believe that Street sentiment under-appreciates the incrementality of Mobile
Search activity. We also view current valuation (15X P/E) as reasonable and see
significant competitive moats around Googles Core Search and Display
Advertising businesses.

Thank you for your consideration of RBC Capital

Markets in the 2013 Greenwich Associates' US Equity
Analysts Study. To access, click link.

Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Conflicts Disclosures, see Page 8.

January 18, 2013

Google Inc.

Target/Upside/Downside Scenario
Exhibit 1: Target/Upside/Downside Scenarios
950
888

Share Price ($/sh)

900
820

850
800
750

711

700
689

650
600
550
500
Current Price

Target Price

Upside Scenario

Downside Scenario

Source: RBC Capital Markets

Target Price/Base Case: $820

Our base case price target of $820 is based on a blended average of a 15x P/E multiple, 12x EV/EBITDA multiple and a FCF yield of
5.0%.

Upside Scenario: $888

This assumes better-than-expected macroeconomic conditions, and that online advertising continues to take share from offline sources
such as TV. Google continues to see strong growth in paid clicks and a more tempered decline in CPCs.

Downside Scenario: $689

This assumes that growth in online advertising moderates due to macroeconomic factors. Google sees considerable CPC dilution from
the move to mobile devices. Anti-trust litigation and MMI integration continue to be overhangs.

January 18, 2013

Google Inc.

Google Fourth Quarter Cheat Sheet

Exhibit 2: GOOG Q4:12 Cheat Sheet
EBAY Q4:12 Results Cheat Sheet
Negative

Neutral

Positive

Consensus

RBC

Comments

Q4 GOOG+MMI Consolidated
Gross Revenue (B)
Net Revenue (B)
Non-GAAP Operating Income (B)
Non-GAAP EPS

<$15.40
<$12.40
<$4.25
<$10.60

$15.40 - $15.70
$12.40 - $12.60
$4.25 - $4.30
$10.60 - $10.70

>$15.70
>$12.60
>$4.30
>$10.70

$15.39
$12.40
$4.25
$10.61

$15.66
$12.40
$4.22
$10.22

Includes gross revenue from Core GOOG and MMI

Includes gross revenue from Core GOOG and MMI, less TAC
RBC and consensus estimates are for 34% margin (off of net rev.)

Q4 Core GOOG
Gross Revenue (B)
Net Revenue (B)
Non-GAAP Operating Income (B)
Non-GAAP Operating Margin

<$12.70
<$9.70
<$4.40
<45.0%

$12.70 - $12.80
$9.70 - $9.80
$4.40 - $4.50
45.0% - 46.0%

>$12.80
>$9.80
>$4.50
>46.0%

$12.73
$9.70
-

$12.75
$9.49
-

RBC projects 11% Q/Q and 21% Y/Y growth

RBC projects 8% Q/Q and 17% Y/Y growth

Q4 Core GOOG Metrics

Google N. American Revenue Growth (Q/Q)
Google Int'l Revenue Growth (Q/Q)
Paid Click Growth (Y/Y)
CPC Growth (Y/Y)

<10.5%
<9.0%
<25.0%
<(10.0%)

10.5% - 11.5%
9.0% - 10.0%
25.0% - 28.0%
(10.0%) - (7.0%)

>11.5%
>10.0%
>28.0%
>(7.0%)

28%
(7.5%)

11.1%
10.3%
25.0%
-

12.7% Q/Q growth in Q4:11

5.7% Q/Q growth in Q4:11
Decelerated in 3Q against tougher comps, comps get 600 bps tougher in 4Q
Flat at (15%)-(16%) in 2Q and 3Q, but comps get 13 pts. easier in 4Q

Q4 Core MMI
Mobility Revenue (B) / Y/Y Growth
Home Revenue (B) / Y/Y Growth
Total Non-GAAP Op. Inc. (MM) / Margin

<$1.90
<$0.85
<($0.150)

$1.90 - $2.00
$0.85 - $0.90
($0.150) - ($0.130)

>$2.00
>$0.90
>($0.130)

$2.03/(20%)
$0.87/(3%)
-

45.1% in Q3:12

Accounted for 13% of consolidated gross revenue in Q3:12

Sale of Home division set to close in Q2:13
$151MM lossin Q3:12

Source: RBC Capital Markets, Company Reports

January 18, 2013

Google Inc.

Exhibit 4: Summary of Estimates

4Q12E
4Q12E
New Est. Prior Est.

3Q12A
Actual

4Q11A
Actual

6015.8
20.8%
11.1%
6738.9
20.3%
10.3%
12754.7
20.5%
10.7%

6015.8
20.8%
11.1%
6738.9
20.3%
10.3%
12754.7
20.5%
10.7%

5416.0

4980.0

21310.8
21.4%

21310.8
21.4%

17560.0

25068.5
17.6%

25068.5
17.6%

21310.8

6110.0

5604.0

24578.9
20.8%

24578.9
20.8%

20345.0

29045.1
18.2%

29045.1
18.2%

24578.9

11526.0

10584.0

12700.0
20.0%
10.2%

45889.7
21.1%

45889.7
21.1%

37905.0

54113.6
17.9%

54113.6
17.9%

45889.7

Google Gross Revenue by Segment

Google websites
YoY Growth
QoQ Growth
Network websites
YoY Growth
QoQ Growth
Licensing & Other
YoY Growth
QoQ Growth
Google Gross Revenue
YoY Growth
QoQ Growth

8429.9
15.6%
9.1%
3731.5
29.6%
19.1%
593.3
44.7%
-10.9%
12754.7
20.5%
10.7%

8429.9
15.6%
9.1%
3731.5
29.6%
19.1%
593.3
44.7%
-10.9%
12754.7
20.5%
10.7%

7727.0

7294.0

31010.9
18.6%

31010.9
18.6%

26145.0

36228.6
16.8%

36228.6
16.8%

31010.9

3133.0

2880.0

12760.5
22.9%

12760.5
22.9%

10386.0

15625.1
22.4%

15625.1
22.4%

12760.5

666.0

410.0

2118.3
54.2%

2118.3
54.2%

1374.0

2259.9
6.7%

2259.9
6.7%

2118.3

11526.00

10584.0

8540.0
17.1%
10.5%
3500.0
21.5%
11.7%
740.0
80.5%
11.1%
12700.0
20.0%
10.2%

45889.7
21.1%

45889.7
21.1%

37905.0

54113.6
17.9%

54113.6
17.9%

45889.7

TAC
% of Network Websites
Google Net Revenue
YoY Growth
QoQ Growth

3261.3
87.4%
9493.4
16.7%
8.4%

3261.3
87.4%
9493.4
16.7%
8.4%

2770.0
88.4%
8756.0

2450.0
85.1%
8134.0

3030.0
86.6%
9670.0
18.9%
10.4%

11141.3
87.3%
34748.4
19.4%

11141.3
87.3%
34748.4
19.4%

8808.0
84.8%
29097.0

13917.9
89.1%
40195.7
15.7%

13917.9
89.1%
40195.7
15.7%

11141.3
87.3%
34748.4

2031.6

2031.6

N/A

N/A

4652.6

4652.6

N/A

7406.9

7406.9

4652.6

870.1

870.1

N/A

N/A

2074.1

2074.1

N/A

3478.1

3478.1

2074.1

2901.6

2901.6

N/A

N/A

2650.0

6726.6

6726.6

N/A

10885.0

10885.0

6726.6

2901.6

2901.6

N/A

N/A

2650.0

6726.6

6726.6

N/A

10885.0

10885.0

6726.6

Consolidated Gross Revenue

Consolidated Net Revenue

15656.3
12395.0

15656.3
12395.0

11526.0
8756.0

10584.0
8134.0

15390.0
12360.0

52616.3
41475.0

52616.3
41475.0

37905.0
29097.0

41499.0

64998.6
51080.7

64998.6
51080.7

52616.3
41475.0

Adjusted EBITDA
YoY Growth
QoQ Growth
EBITDA Margin (on Net Revenue)

5032.2
10.7%
8.7%
40.6%

5032.2
10.7%
8.7%
40.6%

4628.0

4546.0

5079.3
11.7%
9.8%

18647.2
16.1%

18647.2
16.1%

16067.0

18512.0
15.2%

21031.4
12.8%

21031.4
12.8%

18647.2

52.9%

55.9%

45.0%

45.0%

55.2%

41.2%

41.2%

45.0%

Adjusted EPS
YoY Growth
QoQ Growth

$10.22
7.5%
13.2%

$10.22
7.5%
13.2%

$9.03

$9.50

$10.61
11.6%
17.5%

$39.44
9.4%

$39.44
9.4%

$36.06

$39.81
10.4%

$43.43
10.1%

$43.43
10.1%

$39.44

($ in mm, except per share amts)

Google Gross Revenue by Region
US revenue
YoY Growth
QoQ Growth
Int'l revenue
YoY Growth
QoQ Growth
Google Gross Revenue
YoY Growth
QoQ Growth

Motorola Gross Revenue by Segment

Mobile
YoY Growth
QoQ Growth
Home
YoY Growth
QoQ Growth
Motorola Gross Revenue
YoY Growth
QoQ Growth
Motorola Net Revenue

4Q12E
Cons.

2012E
2012E
New Est. Prior Est.

2011A
Actual

2012E
Cons.

2013E
2013E
2012E
New Est. Prior Est. Estimate

2013E
Cons.

51404.0
21913.0
17.5%

$46.02
16.7%

January 18, 2013

Google Inc.

Valuation
Our $820 price target is based on the average of 15x P/E, 12x EV/EBITDA, and 5% FCF yield on our blended 2012/2013 estimates.
Exhibit 4: Valuation

($ in millions, except per share amounts)

Current Price
Shares Outstanding
Current Market Cap
Less Cash
Adj. Enterprise Value

$711.00
333.3
236986.3
45724.0
191262

Price to Earnings
GAAP EPS
Current P/E multiple
Adjusted EPS
Current P/E multiple
Target Multiple
Implied Stock Price on fwd. EPS
EV to EBITDA
Adjusted EBITDA
Current EV/EBITDA Multiple
Target Multiple
Enterprise Value
Plus FY End Cash
Equity Value
FY End Projected Sharecount
Implied Stock Price on fwd. EBITDA
FCF Yield
FCF per Share
Current FCF Yield
Target Yield
Implied Stock Price on FCF yield
Average
Target Price (25% of 2012, 75% of 2013)

2012E
$32.06
22.2x
$39.44
18.0x
15.0x
$592

2013E
$35.73
19.9x
$43.43
16.4x
15.0x
$651

2012E
18647.2
10.3x
12.0x
223767
49495
273262
335
$816

2013E
21031.4
9.1x
12.0x
252377
65261
317638
332
$956

2012E
$40.69
5.7%
5.0%
$814

2013E
$46.58
6.6%
5.0%
$932

$740

$846
$820

Source: Company Reports and RBC Capital Markets

January 18, 2013

Google Inc.

Valuation
Our $820 price target is based on the average of 15x P/E, 12x EV/EBITDA, and 5% FCF yield on our blended 2012/2013 estimates.

Price Target Impediment

The key risk for Google is well-funded competitors that compete for users, search query volume, search network affiliates, and
technological supremacy. The other main risk is that of decelerating growth in paid search overall, and at Google, which would impact
the company's trading multiple. Any of these factors could prevent the stock from reaching our price target.

Company Description
Google is a top search destination on the Web and provides a leading search marketing platform for advertisers and merchants.

January 18, 2013

Google Inc.

Google -- Quarterly Income Statement

($ in Millions, except per share amounts)

Google Gross Revenue

Google Web Sites Revenue
Google Network Web Sites Revenue
TAC
Licensing & Other Revenue
Google Net Revenue

Mar A
1QA
5509.0
3692.8
1638.0
1436.0
178.1
4073.0

FY2009A
Jun A
Sep A
2QA
3QA
5522.9
5944.9
3652.6
3955.7
1683.5
1800.9
1453.4
186.8
4069.5

1559.2
188.2
4385.6

Dec A
4QA
6673.8
4421.3
2043.9

FY2009A
23650.6
15722.5
7166.3

Mar A
1QA
6775.0
4439.0
2036.0

1720.9
208.6
4952.9

6169.4
761.8
17481.1

1711.0
300.0
5064.0

FY2010A
Jun A
Sep A
2QA
3QA
6820.0
7286.0
4499.0
4833.0
2063.0
2199.0
1730.0
258.0
5090.0

1810.0
254.0
5476.0

Dec A
4QA
8440.0
5672.0
2495.0

FY2010A
29321.0
19443.0
8793.0

Mar A
1QA
8575.0
5879.0
2427.0

2069.0
273.0
6371.0

7320.0
1085.0
22001.0

2038.0
269.0
6537.0

FY2011A
Jun A
Sep A
2QA
3QA
9026.0
9720.0
6232.0
6740.0
2484.0
2595.0
2110.0
310.0
6916.0

2210.0
385.0
7510.0

Dec A
4QA
10584.0
7294.0
2880.0

FY2011A
37905.0
26145.0
10386.0

Mar A
1QA
10645.0
7312.0
2913.0

2450.0
410.0
8134.0

8808.0
1374.0
29097.0

2510.0
420.0
8135.0

Motorola Gross Revenue

Mobile
Home
Motorola Net Revenue

FY2012E
Jun A
Sep A
2QA
3QA
10964.0
11526.0
7542.0
7727.0
2983.0
3133.0

Dec E
4QE
12754.7
8429.9
3731.5

FY2012E
45889.7
31010.9
12760.5

Mar E
1QE
12586.6
8560.2
3520.7

FY2013E
Jun E
Sep E
2QE
3QE
12954.6
13645.7
8751.0
8935.9
3708.8
4043.8

Dec E
4QE
14926.8
9981.6
4351.9

FY2013E
54113.6
36228.6
15625.1

2600.0
439.0
8364.0

2770.0
666.0
8756.0

3261.3
593.3
9493.4

11141.3
2118.3
34748.4

3138.6
505.8
9448.0

3304.6
494.8
9649.9

3576.8
666.0
10068.9

3897.9
593.3
11028.9

13917.9
2259.9
40195.7

1250.0
843.0
407.0
1250.0

2575.0
1778.0
797.0
2575.0

2901.6
2031.6
870.1
2901.6

6726.6
4652.6
2074.1
6726.6

2702.2
1798.2
904.0
2702.2

3161.7
2254.7
907.0
3161.7

2221.0
1424.0
797.0
2221.0

2800.1
1930.0
870.1
2800.1

10885.0
7406.9
3478.1
10885.0

Consolidated Gross Revenue

Consolidated Net Revenue

5509.0
4073.0

5522.9
4069.5

5944.9
4385.6

6673.8
4952.9

23650.6
17481.1

6775.0
5064.0

6820.0
5090.0

7286.0
5476.0

8440.0
6371.0

29321.0
22001.0

8575.0
6537.0

9026.0
6916.0

9720.0
7510.0

10584.0
8134.0

37905.0
29097.0

10645.0
8135.0

12214.0
9614.0

14101.0
11331.0

15656.3
12395.0

52616.3
41475.0

15288.8
12150.1

16116.3
12811.7

15866.7
12289.9

17726.8
13829.0

64998.6
51080.7

Cost of Net Revenues

Gross Profit
Operating Expenses:
Product Development
Sales and Marketing
General and Administrative
Stock Based Compensation
Other (YHOO/Legal)
Operating Expenses (ex. COGS, Stock Comp)
Total Operating Expenses
Income from Operations (GAAP)

653.0
3420.0

641.0
3428.5

652.2
3733.5

681.5
4271.5

2627.6
14853.5

735.0
4329.0

727.0
4363.0

734.0
4742.0

3028.0
18973.0

849.0
5688.0

1011.0
5905.0

1096.0
6414.0

1175.0
6959.0

4131.0
24966.0

1205.0
6930.0

2326.0
7288.0

3673.0
7658.0

3995.2
8399.8

11199.2
30275.8

3825.3
8324.9

4201.5
8610.2

3480.0
8809.9

4073.8
9755.1

15580.6
35500.1

473.1
374.9
411.0
277.5

525.4
411.7
324.4
293.1

561.9
435.6
344.8
317.5

557.3
530.7
426.5
276.0

2117.7
1752.9
1506.7
1164.1

627.0
553.0
370.0
291.0

696.0
573.0
418.0
309.0

750.0
586.0
479.0
380.0

832.0
5539.0
16.3%
827.0
826.0
508.0
396.0

2900.0
2538.0
1775.0
1376.0

987.0
1017.0
585.0
435.0

1093.0
1100.0
592.0
571.0

1032.0
1163.0
721.0
536.0

4101.0
4228.0
2421.0
1974.0

1142.0
1172.0
671.0
556.0

1294.0
1313.0
820.0
658.0

1631.0
1605.0
924.0
762.0

1518.4
1673.3
991.6
805.7

5585.4
5763.3
3406.6
2781.7

1609.9
1640.3
996.3
789.8

1697.5
1729.6
1050.6
832.8

1628.4
1659.1
1007.8
798.8

1797.8
1866.9
1134.0
898.9

6733.6
6895.9
4188.6
3320.2

1258.9
2189.4
1883.6

1261.6
2195.6
1873.9

1342.2
2311.9
2073.7

1514.5
2472.0
2481.0

5377.3
9169.0
8312.2

1550.0
2576.0
2488.0

1687.0
2723.0
2365.0

1815.0
2929.0
2547.0

2161.0
3389.0
2982.0

7213.0
11617.0
10384.0

989.0
948.0
523.0
432.0
500.0
2460.0
4241.0
2296.0

2589.0
4035.0
2881.0

2785.0
4452.0
3058.0

2916.0
4627.0
3507.0

10750.0
17355.0
11742.0

2985.0
4746.0
3389.0

3427.0
6411.0
3203.0

4160.0
8595.0
2736.0

4183.3
8984.2
3410.8

14755.3
28736.2
12738.8

4246.5
8861.5
3288.6

4477.7
9511.9
3299.7

4295.3
8574.2
3715.7

4798.6
9771.3
4057.6

17818.1
36719.0
14361.7

Depreciation & Amortization

EBITDA

403.2
2286.8

377.0
2250.9

378.6
2452.3

365.5
2846.5

1524.3
9836.5

331.0
2819.0

342.0
2709.0

342.0
2889.0

381.0
3363.0

1396.0
11780.0

401.0
2697.0

455.0
3336.0

492.0
3550.0

503.0
4010.0

1851.0
13593.0

511.0
3900.0

670.0
3873.0

828.0
3564.0

815.7
4226.6

2824.7
15563.6

837.7
4126.3

843.1
4142.9

836.4
4552.1

832.3
4889.9

3349.5
17711.2

Impairment on equity investments

Interest income and other, net
Pretax Income
Provision for income taxes

0.0
6.2
1889.8
467.0

0.0
(17.7)
1856.2
371.6

0.0
(7.2)
2066.5
427.6

0.0
87.7
2568.7
594.6

0.0
69.0
8381.2
1860.7

0.0
18.0
2506.0
551.0

0.0
69.0
2436.0
594.0

0.0
167.0
2714.0
547.0

0.0
160.0
3142.0
599.0

0.0
414.0
10798.0
2291.0

0.0
96.0
2392.0
594.0

0.0
204.0
3085.0
580.0

0.0
302.0
3360.0
631.0

0.0
(18.0)
3489.0
784.0

0.0
584.0
12326.0
2589.0

0.0
156.0
3545.0
655.0

0.0
254.0
3457.0
672.0

0.0
63.0
2799.0
623.0

0.0
181.5
3592.3
790.3

0.0
654.5
13393.3
2740.3

0.0
196.9
3485.5
644.0

0.0
208.5
3508.2
682.0

0.0
227.5
3943.2
877.7

0.0
242.5
4300.1
946.0

0.0
875.3
15237.0
3149.7

Net Income (GAAP)

EPS (GAAP)

1422.8
$4.49

1484.5
$4.66

1639.0
$5.13

1974.1
$6.13

6520.4
$20.41

1955.0
$6.06

1840.0
$5.71

2167.0
$6.72

2543.0
$7.81

8507.0
$26.32

1798.0
$5.51

2505.0
$7.68

2729.0
$8.33

2705.0
$8.22

9737.0
$29.76

2890.0
$8.75

2785.0
$8.42

2176.0
$6.53

2802.0
$8.36

10653.0
$32.06

2841.5
$8.45

2826.3
$8.39

3065.5
$9.03

3354.1
$9.83

12087.4
$35.73

317.2

318.5

319.7

322.2

319.4

322.6

322.5

322.4

325.5

323.3

326.4

326.0

327.4

329.0

327.2

330.1

330.8

333.3

335.0

332.3

336.1

336.8

339.4

341.1

338.3

277.5

293.1

317.5

276.0

1164.1

291.0

309.0

380.0

396.0

1376.0

432.0

435.0

571.0

536.0

1974.0

556.0

658.0

762.0

805.7

2781.7

789.8

832.8

798.8

898.9

3320.2

Adjusted Net Income

Adjusted EPS

1636.3
$5.16

1708.2
$5.36

1883.9
$5.89

2188.1
$6.79

7416.5
$23.22

2181.0
$6.76

2081.0
$6.45

2462.0
$7.64

2850.0
$8.75

9574.0
$29.62

2638.0
$8.08

2849.0
$8.74

3184.0
$9.72

3127.0
$9.50

11798.0
$36.06

3328.0
$10.08

3346.0
$10.12

3009.0
$9.03

3422.4
$10.22

13105.4
$39.44

3461.4
$10.30

3480.0
$10.33

3692.6
$10.88

4059.7
$11.90

14693.8
$43.43

Depreciation & Amortization

Adjusted EBITDA
Adjusted Income from Operations

403.2
2564.3
2161.1

377.0
2543.9
2167.0

378.6
2769.9
2391.2

365.5
3122.5
2757.0

1524.3
11000.5
9476.2

331.0
3110.0
2779.0

342.0
3018.0
2676.0

342.0
3269.0
2927.0

381.0
3759.0
3378.0

1396.0
13156.0
11760.0

401.0
3629.0
2728.0

455.0
3771.0
3316.0

492.0
4121.0
3629.0

503.0
4546.0
4043.0

1851.0
16067.0
13716.0

511.0
4456.0
3945.0

670.0
4531.0
3861.0

828.0
4628.0
3800.0

815.7
5032.2
4216.5

2824.7
18647.2
15822.5

837.7
4916.1
4078.4

843.1
4975.6
4132.5

836.4
5351.0
4514.6

832.3
5788.7
4956.5

3349.5
21031.4
17681.9

Free Cash Metrics

Free Cash Flow
FCF per share
Free Cash Flow less tax benefit from options

1986.8
$6.26
2018.6

1469.7
$4.61
1474.3

2539.6
$7.94
2567.7

2510.2
$7.79
2536.1

8506.3
$26.63
8596.6

2345.0
$7.27
2357.0

1611.0
$5.00
1630.0

2129.0
$6.60
2141.0

981.0
$3.01
1032.0

7066.0
$21.86
7160.0

2282.0
$6.99
2306.0

2602.0
$7.98
2611.0

3270.0
$9.99
3298.0

2973.0
$9.04
2998.0

11127.0
$34.01
11213.0

3087.0
$9.35
3115.0

3478.0
$10.51
3505.0

3132.0
$9.40
3190.0

3823.0
$11.41
3881.0

13520.0
$40.69
13691.0

2851.5
$8.48
2909.5

4652.1
$13.81
4710.1

3695.2
$10.89
3753.2

4559.8
$13.37
4617.8

15758.6
$46.58
15990.6

Margin Analysis
Gross Margin
Sales and Marketing as % of Net Revenue
Product Development as % of Net Revenue
General and Administrative as % of Net Revenue
Operating Margin (GAAP)
EBITDA Margin
Net Income (GAAP)
Adjusted Net Income
Adjusted EBITDA Margin
Incremental EBITDA Margin
Adjusted Operating Margin
Effective Tax Rate
Pretax Income

84.0%
9.2%
11.6%
10.1%
46.2%
56.1%
34.9%
40.2%
63.0%
107.3%
53.1%
24.7%
46.4%

84.2%
10.1%
12.9%
8.0%
46.0%
55.3%
36.5%
42.0%
62.5%
171.0%
53.2%
20.0%
45.6%

85.1%
9.9%
12.8%
7.9%
47.3%
55.9%
37.4%
43.0%
63.2%
106.3%
54.5%
20.7%
47.1%

86.2%
10.7%
11.3%
8.6%
50.1%
57.5%
39.9%
44.2%
63.0%
80.3%
55.7%
23.1%
51.9%

85.0%
10.0%
12.1%
8.6%
47.5%
56.3%
37.3%
42.4%
62.9%
101.8%
54.2%
22.2%
47.9%

85.5%
10.9%
12.4%
7.3%
49.1%
55.7%
38.6%
43.1%
61.4%
55.1%
54.9%
22.0%
49.5%

85.7%
11.3%
13.7%
8.2%
46.5%
53.2%
36.1%
40.9%
59.3%
46.5%
52.6%
24.4%
47.9%

86.6%
10.7%
13.7%
8.7%
46.5%
52.8%
39.6%
45.0%
59.7%
45.8%
53.5%
20.2%
49.6%

86.9%
13.0%
13.0%
8.0%
46.8%
52.8%
39.9%
44.7%
59.0%
44.9%
53.0%
19.1%
49.3%

86.2%
11.5%
13.2%
8.1%
47.2%
53.5%
38.7%
43.5%
59.8%
47.7%
53.5%
21.2%
49.1%

87.0%
14.5%
15.1%
8.0%
35.1%
41.3%
27.5%
40.4%
55.5%
35.2%
41.7%
24.8%
36.6%

85.4%
14.7%
14.3%
8.5%
41.7%
48.2%
36.2%
41.2%
54.5%
41.2%
47.9%
18.8%
44.6%

85.4%
14.6%
14.6%
7.9%
40.7%
47.3%
36.3%
42.4%
54.9%
41.9%
48.3%
18.8%
44.7%

85.6%
14.3%
12.7%
8.9%
43.1%
49.3%
33.3%
38.4%
55.9%
44.6%
49.7%
22.5%
42.9%

85.8%
14.5%
14.1%
8.3%
40.4%
46.7%
33.5%
40.5%
55.2%
41.0%
47.1%
21.0%
42.4%

85.2%
14.4%
14.0%
8.2%
41.7%
47.9%
35.5%
40.9%
54.8%
51.8%
48.5%
18.5%
43.6%

87.1%
15.7%
15.5%
9.8%
38.3%
46.3%
33.3%
40.0%
54.2%
52.5%
46.2%
19.4%
41.3%

87.5%
18.3%
18.6%
10.6%
31.2%
40.7%
24.9%
34.4%
52.9%
40.7%
43.4%
22.3%
32.0%

88.5%
17.6%
16.0%
10.4%
35.9%
44.5%
29.5%
36.1%
53.0%
35.8%
44.4%
22.0%
37.8%

87.1%
16.6%
16.1%
9.8%
36.7%
44.8%
30.7%
37.7%
53.7%
45.7%
45.5%
20.5%
38.5%

88.1%
17.4%
17.0%
10.5%
34.8%
43.7%
30.1%
36.6%
52.0%
35.0%
43.2%
18.5%
36.9%

89.2%
17.9%
17.6%
10.9%
34.2%
42.9%
29.3%
36.1%
51.6%
34.6%
42.8%
19.4%
36.4%

87.5%
16.5%
16.2%
10.0%
36.9%
45.2%
30.4%
36.7%
53.1%
55.1%
44.8%
22.3%
39.2%

88.5%
16.9%
16.3%
10.3%
36.8%
44.3%
30.4%
36.8%
52.5%
49.3%
44.9%
22.0%
39.0%

88.3%
17.2%
16.8%
10.4%
35.7%
44.1%
30.1%
36.6%
52.3%
43.8%
44.0%
20.7%
37.9%

10.1%
10.9%
-1.3%
-7.3%
9.9%
0.1%
21.8%
6.5%
6.5%
18.5%
18.3%

4.5%
6.2%
6.2%
-6.8%
-26.5%
-8.5%
18.8%
16.0%
15.8%
13.4%
17.1%

8.4%
10.5%
5.0%
-2.0%
-8.4%
-1.0%
25.9%
20.5%
19.8%
15.0%
24.1%

17.4%
21.2%
1.1%
18.0%
13.5%
10.0%
33.4%
35.4%
33.1%
23.3%
28.4%

10.2%
12.4%
2.8%
0.7%
-3.9%
0.2%
25.3%
19.3%
18.6%
17.7%
22.2%

24.3%
26.6%
32.5%
47.5%
-10.0%
23.1%
32.1%
33.3%
31.1%
21.3%
28.6%

25.1%
27.3%
32.5%
39.2%
28.9%
33.7%
26.2%
21.8%
20.3%
18.6%
23.5%

24.9%
27.0%
33.5%
34.5%
38.9%
35.2%
22.8%
30.7%
29.6%
18.0%
22.4%

28.6%
29.7%
48.4%
55.6%
19.1%
42.7%
20.2%
30.3%
28.9%
20.4%
22.5%

25.9%
27.7%
36.9%
44.8%
17.8%
34.1%
24.9%
29.1%
27.6%
19.6%
24.1%

29.1%
31.4%
57.7%
71.4%
41.4%
58.7%
-7.7%
21.0%
19.6%
16.7%
-1.8%

35.9%
35.3%
41.8%
77.5%
40.0%
53.5%
21.8%
36.9%
35.4%
25.0%
23.9%

37.1%
35.3%
45.7%
87.7%
23.6%
53.4%
20.1%
29.3%
27.3%
26.1%
24.0%

27.7%
25.6%
24.8%
40.8%
41.9%
34.9%
17.6%
9.7%
8.6%
20.9%
19.7%

32.3%
31.6%
41.4%
66.6%
36.4%
49.0%
13.1%
23.2%
21.7%
22.1%
16.6%

24.4%
21.8%
15.5%
23.6%
28.3%
21.3%
47.6%
26.2%
24.7%
22.8%
44.6%

20.9%
23.4%
31.1%
29.1%
40.2%
32.4%
11.2%
17.4%
15.8%
20.2%
16.4%

16.6%
19.4%
49.2%
45.9%
56.1%
49.4%
-10.5%
-5.5%
-7.2%
12.3%
4.7%

16.7%
20.7%
47.1%
43.9%
37.5%
43.5%
-2.7%
9.4%
7.5%
10.7%
4.3%

19.4%
21.3%
36.2%
36.3%
40.7%
37.3%
8.5%
11.1%
9.4%
16.1%
15.4%

16.1%
20.1%
41.0%
40.0%
48.5%
42.3%
-3.0%
4.0%
2.2%
10.3%
3.4%

15.4%
18.1%
31.2%
31.7%
28.1%
30.7%
3.0%
4.0%
2.1%
9.8%
7.0%

15.0%
15.0%
-0.2%
3.4%
9.1%
3.3%
35.8%
22.7%
20.5%
15.6%
18.8%

16.2%
16.1%
18.4%
11.6%
14.4%
14.7%
19.0%
18.6%
16.5%
15.0%
17.5%

15.7%
17.3%
20.6%
19.7%
23.0%
20.8%
12.7%
12.1%
10.1%
12.8%
11.8%

Diluted Shares Outstanding

Nonrecurring and Extraordinary Items:
Stock Based Compensation
Yahoo Settlement
Tax benefits
Total Nonrecurring and Extraordinary Items

Year Over Year Growth

Net Revenue
Gross Profit
Product Development
Sales and Marketing
General and Administrative
Operating Expenses (ex. COGS, Stock Comp)
Operating Income (GAAP)
Adjusted Net Income
Adjusted EPS
Adjusted EBITDA
Adjusted Operating Margin
Gross Revenue Breakdown by Geography
Domestic
International

2627.1
2881.9

2609.1
2913.8

2804.9
3142.6

3152.5
3518.7

11193.6
12457.0

3196.0
3579.0

3288.0
3532.0

3517.0
3769.0

4055.0
4385.0

14056.0
15265.0

4005.0
4570.0

4155.0
4871.0

4420.0
5300.0

4980.0
5604.0

17560.0
20345.0

4874.0
5771.0

5005.0
5959.0

5416.0
6110.0

6015.8
6738.9

21310.8
24578.9

5756.5
6830.1

5897.9
7056.7

6369.0
7276.7

7045.2
7881.5

25068.5
29045.1

Source: Company reports and RBC Capital Markets Estimates

January 18, 2013

Google Inc.

Required Disclosures
Conflicts Disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total
revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by
investment banking activities of the member companies of RBC Capital Markets and its affiliates.
RBC Capital Markets, LLC makes a market in the securities of Google Inc. and may act as principal with regard to sales or purchases
of this security.
A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than
investment banking services from Google Inc. during the past 12 months. During this time, a member company of RBC Capital
Markets or one of its affiliates provided non-investment banking securities-related services to Google Inc..
A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than
investment banking services from Google Inc. during the past 12 months. During this time, a member company of RBC Capital
Markets or one of its affiliates provided non-securities services to Google Inc..
RBC Capital Markets has provided Google Inc. with non-investment banking securities-related services in the past 12 months.
RBC Capital Markets has provided Google Inc. with non-securities services in the past 12 months.
The author is employed by RBC Capital Markets, LLC, a securities broker-dealer with principal offices located in New York, USA.

Explanation of RBC Capital Markets Equity Rating System

An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to
a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's
sector average.
Ratings
Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months with a
favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Risk Qualifiers (any of the following criteria may be present):
Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; no
significant cash flow/financing concerns over coming 12-24 months; fairly liquid.
Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictability; may
not be suitable for a significant class of individual equity investors; may have negative cash flow; low market cap or float.
Speculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; risk of being delisted.

Distribution of Ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy,
Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform,
Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same
because our ratings are determined on a relative basis (as described above).

Distribution of Ratings
RBC Capital Markets, Equity Research
Investment Banking
Serv./Past 12 Mos.
Rating
BUY[TP/O]
HOLD[SP]
SELL[U]

Count

Percent

Count

Percent

791
693
70

50.90
44.59
4.50

273
179
8

34.51
25.83
11.43

January 18, 2013

Google Inc.

Rating and Price Target History for: Google Inc. as of 01-17-2013 (in USD)
07/09/10
OP:600

10/15/10
OP:690

01/21/11
OP:700

04/15/11
OP:680

07/15/11
OP:790

10/14/11
OP:800

04/13/12
OP:850

10/19/12
OP:820

800
700
600
500
400

Q1
2010

Q2

Q3

Q1

Q2

Q3

2011

Q1
2012

Q2

300
Q1

Q3
2013

Legend:
TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage; NR: Not Rated; NA: Not Available;
RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date a security was removed from a recommended list.
Created by BlueMatrix

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by a business unit of the Wealth Management Division of RBC Capital Markets, LLC. These Recommended
Lists include a former list called the Prime Opportunity List (RL 3), the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio:
Large Cap (RL 7), Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: Midcap 111 (RL9), and the Guided Portfolio:
ADR (RL 10). The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off'
means the date a security was removed from a Recommended List.

Conflicts Policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To
access our current policy, clients should refer to
https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

Dissemination of Research and Short-Term Trade Ideas

RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard
to local time zones in overseas jurisdictions. RBC Capital Markets' research is posted to our proprietary websites to ensure eligible
clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be
done by the sales personnel via email, fax or regular mail. Clients may also receive our research via third-party vendors. Please contact
your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. RBC Capital
Markets also provides eligible clients with access to SPARC on its proprietary INSIGHT website. SPARC contains market color and
commentary, and may also contain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or other
research reports. SPARC may be accessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea reflects
the research analyst's directional view regarding the price of the security of a subject company in the coming days or weeks, based on
market and trading events. A Short-Term Trade Idea may differ from the price targets and/or recommendations in our published
research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of
the differing time horizons, methodologies and/or other factors. Thus, it is possible that the security of a subject company that is
considered a long-term 'Sector Perform' or even an 'Underperform' might be a short-term buying opportunity as a result of temporary
selling pressure in the market; conversely, the security of a subject company that is rated a long-term 'Outperform' could be considered
susceptible to a short-term downward price correction. Short-Term Trade Ideas are not ratings, nor are they part of any ratings system,
and RBC Capital Markets generally does not intend, nor undertakes any obligation, to maintain or update Short-Term Trade Ideas.
Short-Term Trade Ideas discussed in SPARC may not be suitable for all investors and have not been tailored to individual investor
circumstances and objectives, and investors should make their own independent decisions regarding any Short-Term Trade Ideas
discussed therein.

Analyst Certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the
subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
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January 18, 2013

Google Inc.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poors Financial Services
LLC (S&P) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied
warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of
originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Disclaimer
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warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness.
All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are
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Additional information is available on request.
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To Canadian Residents:
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Copyright RBC Capital Markets, LLC 2013 - Member SIPC
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Copyright Royal Bank of Canada 2013
All rights reserved

10