Google reports Q2 revenues of $8.36 billion, and earnings per share of $10.12

Today Google reported its second quarter earnings, with revenues during the period of $8.36 billion, and diluted earnings per share of $10.12. Analysts had anticipated earnings per share of $10.04, and revenues, once traffic acquisition costs were deducted, of $8.41 billion.

Google’s share price has declined since its last earnings report. Its massive purchase of Motorola will likely be detailed in its earnings call that will follow this release. We’ve learned today that Google’s CEO, Larry Page, will not be participating on the call.

In its official press release, Google’s CEO shared his thoughts on the quarter:

Google standalone had a strong quarter with 21% year-on-year revenue growth, and we launched a bunch of exciting new products at I/O – in particular the Nexus 7 tablet, which has received rave reviews. This quarter is also special because Motorola is now part of the Google family, and we’re excited about the potential to build great devices for users.

In after hours trading, Google’s stock is up $24.

Here’s the full earnings release from Google:

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Q2 Financial Summary

Google Inc. completed its acquisition of Motorola Mobility Holdings, Inc. (Motorola) on May 22, 2012 (the acquisition date). The assets and liabilities of Motorola were included in Google Inc.’s Consolidated Balance Sheet as of June 30, 2012, and the operating results of Motorola were included in Google Inc.’s Consolidated Statement of Income from the acquisition date through June 30, 2012. CFO Patrick Pichette noted, “We can expect Motorola to continue to show some accounting variability, as is typical with the closing of such large transactions.”

Google Inc. reported consolidated revenues of $12.21 billion for the quarter ended June 30, 2012, an increase of 35% compared to the second quarter of 2011. Google Inc. reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the second quarter of 2012, TAC totaled $2.60 billion, or 25% of advertising revenues.

Operating income, operating margin, net income, and earnings per share (EPS) are reported 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 at the end of this release.

GAAP operating income in the second quarter of 2012 was $3.20 billion, or 26% of revenues. This compares to GAAP operating income of $2.88 billion, or 32% of revenues, in the second quarter of 2011. Non-GAAP operating income in the second quarter of 2012 was $3.95 billion, or 32% of revenues. This compares to non-GAAP operating income of $3.32 billion, or 37% of revenues, in the second quarter of 2011.

GAAP net income in the second quarter of 2012 was $2.79 billion, compared to $2.51 billion in the second quarter of 2011. Non-GAAP net income in the second quarter of 2012 was $3.35 billion, compared to $2.85 billion in the second quarter of 2011.

GAAP EPS in the second quarter of 2012 was $8.42 on 331 million diluted shares outstanding, compared to $7.68 in the second quarter of 2011 on 326 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2012 was $10.12, compared to $8.74 in the second quarter of 2011.

Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC) and severance and benefit arrangements in connection with the Motorola acquisition in the second quarter of 2012. Non-GAAP net income and non-GAAP EPS exclude the expenses noted above, net of the related tax benefit. In the second quarter of 2012, the expense related to SBC and the related tax benefits were $565 million and $135 million, compared to $435 million and $91 million in the second quarter of 2011. In the second quarter of 2012, the charge related to severance and benefit arrangements in connection with the Motorola acquisition was $182 million and the related tax benefit was $51 million.

Q2 Financial Highlights

Revenues and Other Information – On a consolidated basis, Google Inc. revenues for the quarter ended June 30, 2012 was $12.21 billion, an increase of 35% compared to the second quarter of 2011.

Google Revenues (advertising and other) – Google revenues were $10.96 billion, or 90% of consolidated revenues, in the second quarter of 2012, representing a 21% increase over second quarter 2011 revenues of $9.03 billion.

Google Sites Revenues – Google-owned sites generated revenues of $7.54 billion, or 69% of Google revenues, in the second quarter of 2012. This represents a 21% increase over second quarter 2011 Google sites revenues of $6.23 billion.

Google Network Revenues – Google’s partner sites generated revenues of $2.98 billion, or 27% of Google revenues, in the second quarter of 2012. This represents a 20% increase from second quarter 2011 Google network revenues of $2.48 billion.

Google International Revenues – Google revenues from outside of the United States totaled $5.96 billion, representing 54% of Google revenues in the second quarter of 2012, compared to 54% in the first quarter of 2012 and 54% in the second quarter of 2011.

Foreign Exchange Impact on Google Revenues – Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2012 through the second quarter of 2012, our Google revenues in the second quarter of 2012 would have been $68 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2011 through the second quarter of 2012, our Google revenues in the second quarter of 2012 would have been $350 million higher.

Google revenues from the United Kingdom totaled $1.18 billion, representing 11% of Google revenues in the second quarter of 2012, compared to 11% in the second quarter of 2011.

In the second quarter of 2012, we recognized a benefit of $81 million to Google revenues through our foreign exchange risk management program, compared to $4 million in the second quarter of 2011.

Reconciliations of our consolidated non-GAAP international revenues and Google non-GAAP international revenues excluding the impact of foreign exchange and hedging to consolidated GAAP international revenues and Google GAAP international revenues are included at the end of this release.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 42% over the second quarter of 2011 and increased approximately 1% over the first quarter of 2012.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 16% over the second quarter of 2011 and increased approximately 1% over the first quarter of 2012.

TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.60 billion in the second quarter of 2012, compared to $2.11 billion in the second quarter of 2011. TAC as a percentage of advertising revenues was 25% in the second quarter of 2012, compared to 24% in the second quarter of 2011.

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.09 billion in the second quarter of 2012. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $507 million in the second quarter of 2012.

Motorola Revenues (hardware and other) – Motorola revenues were $1.25 billion ($843 million from the mobile segment and $407 million from the home segment), or 10% of consolidated revenues in the second quarter of 2012.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, and manufacturing and inventory-related costs, increased to $2.41 billion, or 20% of revenues, in the second quarter of 2012, compared to $1.06 billion, or 12% of revenues, in the second quarter of 2011.

Operating Expenses – Operating expenses, other than cost of revenues, were $4.0 billion in the second quarter of 2012, or 33% of revenues, compared to $2.97 billion in the second quarter of 2011, or 33% of revenues.

Stock-Based Compensation (SBC) – In the second quarter of 2012, the total charge related to SBC was $658 million, of which $93 million was related to severance and benefit arrangements in connection with the Motorola acquisition, compared to $435 million in the second quarter of 2011.

We currently estimate SBC charges for grants to employees prior to June 30, 2012 to be approximately $2.6 billion for 2012. This estimate does not include expenses to be recognized related to employee stock awards that are granted after June 30, 2012 or non-employee stock awards that have been or may be granted.

Amortization Expenses – Amortization expenses of acquisition-related intangible assets were $193 million in the second quarter of 2012, compared to $106 million in the second quarter of 2011. Of the $193 million, $62 million was as a result of the acquisition of Motorola, of which $32 million was allocated to Google and $30 million was allocated to Motorola.

Operating Income – On a consolidated basis, GAAP operating income in the second quarter of 2012 was $3.20 billion, or 26% of revenues. This compares to GAAP operating income of $2.88 billion, or 32% of revenues, in the second quarter of 2011. Non-GAAP operating income in the second quarter of 2012 was $3.95 billion, or 32% of revenues. This compares to non-GAAP operating income of $3.32 billion, or 37% of revenues, in the second quarter of 2011.

Google Operating Income – GAAP operating income for Google was $3.44 billion, or 31% of Google revenues, in the second quarter of 2012. This compares to GAAP operating income of $2.88 billion, or 32% of Google revenues, in the second quarter of 2011. Non-GAAP operating income in the second quarter of 2012 was $3.99 billion, or 36% of Google revenues. This compares to non-GAAP operating income of $3.32 billion in the second quarter of 2011, or 37% of Google revenues.

Motorola Operating Loss – GAAP operating loss for Motorola was $233 million ($192 million for the mobile segment and $41 million for the home segment), or -19% of Motorola revenues in the second quarter of 2012. Non-GAAP operating loss for Motorola in the second quarter of 2012 was $38 million, or -3% of Motorola revenues.

Interest and Other Income, Net – Interest and other income, net increased to $254 million in the second quarter of 2012, compared to $204 million in the second quarter of 2011.

Income Taxes – Our effective tax rate was 19% for the second quarter of 2012.

Net Income – GAAP net income in the second quarter of 2012 was $2.79 billion, compared to $2.51 billion in the second quarter of 2011. Non-GAAP net income was $3.35 billion in the second quarter of 2012, compared to $2.85 billion in the second quarter of 2011. GAAP EPS in the second quarter of 2012 was $8.42 on 331 million diluted shares outstanding, compared to $7.68 in the second quarter of 2011 on 326 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2012 was $10.12, compared to $8.74 in the second quarter of 2011.

Cash Flow and Capital Expenditures – Net cash provided by operating activities in the second quarter of 2012 totaled $4.25 billion, compared to $3.52 billion in the second quarter of 2011. In the second quarter of 2012, capital expenditures were $774 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 2012, free cash flow was $3.48 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, 2012, cash, cash equivalents, and short-term marketable securities were $43.1 billion.

Headcount – On a worldwide basis, we employed 54,604 full-time employees (34,311 in our Google business and 20,293 in our Motorola business) as of June 30, 2012, compared to 33,077 full-time employees as of March 31, 2012.