Google parent Alphabet Inc. must “take aggressive action” to cut costs, according to an activist investor.
Christopher Hohn, the managing director of TCI Fund Management, penned a letter to Alphabet GOOG, +2.80% GOOGL, +2.86% Chief Executive Sundar Pichai Tuesday urging him to lower the company’s expense base, reduce losses in the Other Bets unit, and boost stock buybacks. TCI owned more than $ 6 billion in Alphabet shares, per the letter.
“Our conversations with former executives of Alphabet suggest that the business could be operated more effectively with significantly fewer employees,” Hohn wrote. “We agree with Altimeter Capital’s Brad Gerstner, who wrote: ‘It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people.’”
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Hohn noted that Meta Platforms Inc. META, +2.50% slashed 13% of its workforce last week, while Salesforce Inc. CRM, +2.15% Twitter, and Microsoft Corp. MSFT, +0.17% are among other companies that recently announced job cuts. Additionally, Amazon.com Inc. AMZN, +0.46% is reported to be planning for the elimination of about 10,000 jobs.
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“Alphabet’s headcount has increased at an annual rate of 20% since 2017,” he wrote. “It has more than doubled since 2017. This growth is excessive, both in relation to historic headcount growth and what the business requires.”
Alphabet didn’t immediately respond to a MarketWatch request for comment on the cost-cut recommendations.
Hohn also argued that Alphabet’s employee compensation is lofty, citing an S&P Global analysis that found Alphabet’s median compensation was 67% higher than at Microsoft and 153% higher than at the largest 20 public tech companies in the U.S.
“There is no justification for this enormous disparity,” he wrote, adding that while the company “employs some of the most talented and brightest computer scientists and engineers,” many other employees “are performing general sales, marketing and administrative jobs” and “should be compensated in-line with other technology companies.”
Hohn further urged Alphabet to scale back losses in its Other Bets unit, which includes self-driving car project Waymo. Other Bets on the whole has generated just $ 3 billion in cumulative revenue over the last five years along with $ 20 billion in cumulative operating losses, he said.
Waymo specifically “has not justified its excessive investment and its losses should be reduced dramatically.”
“In a new era of slower revenue growth, aggressive cost management is essential,” he continued.
Shares of Alphabet were up 4.5% in midday trading Tuesday, with gains building over the course of the morning.
Hohn noted that Alphabet shares were down 34% as of the writing of his letter.
“The stock is very cheap,” he wrote. “Alphabet should take advantage of the current low valuation and significantly accelerate share repurchases.”