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Alphabet is under pressure to axe the workforce and other costs

Autor: Article based upon analysis from Reuters Breakingviews | Link: Google owner makes a quixotic Chris Hohn target
Timp de citit: 2 minute

British billionaire Chris Hohn called on Google parent Alphabet to get in line with other big tech companies in terms of layoffs and pay cuts.

His activist hedge fund TCI Fund Management asked chief executive Sundar Pichai to reduce costs and losses in long-term bets such as the self-driving car unit Waymo.

We are writing to express our view that the cost base of Alphabet is too high and management needs to take aggressive action,” TCI wrote in a letter to Pichai, signed by managing director Hohn.

“The company has too many employees and the cost per employee is too high”.

Hohn has been an investor for five years in Alphabet, owning shares worth more than $6 billion in the $1.3 trillion company controlled by co-founders Sergey Brin and Larry Page.

Besides the Silicon Valley trend of job cuts, the fact that Alphabet is facing revenue slows and weakening operating leverage also stands true.

So Hohn’s call to slash staff, cut rank-and-file pay, pare moonshot losses and buy back more stock could be valid.

Steep layoffs have been rippling across Silicon Valley in recent weeks, with Twitter under new owner Elon Musk and Facebook parent Meta Platforms each cutting thousands of jobs.

Amazon.com joined the trend on 14 November, when news that it is planning layoffs affecting as many as 10,000 employees came.

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Google’s headcount stands 25% higher than a year earlier, at 186,779, while median employee pay is nearly $300,000 apiece.

That’s more than double what the industry’s 20 biggest publicly traded companies shell out, per S&P Global Market Intelligence research released in September and cited by Hohn.

On the other hand, Waymo, the self-driving auto unit, lost more than $5 billion last year.

It’s a big number, but still half as much as Facebook’s owner splashed out on the Metaverse, as Reuters notes.

Meta also has lost two-thirds of its market value over the last year, while Alphabet’s has declined by a third.

But the company is already adjusting its position through these turbulent economic times.
CFO Ruth Porat told investors last month the company would “redeploy” staff into the highest priority projects and optimize HR.

Also, Alphabet repurchased nearly $150 billion of stock since 2019, and the company stands on $100 billion in cash.

So is it wise to axe the workforce, pay, and investment when Alphabet could instead build on its edge?

Hohn is a prominent investor who has made a name taking on some of the world’s biggest companies, usually in service of higher returns for shareholders but also for social causes.

Maybe looking at employees from a social standpoint would help.