Google parent Alphabet Inc. needs to take “aggressive action” to reduce expenses and scale back an overgrown headcount, investor TCI Fund Management Ltd. said in a letter to the internet-search giant, urging the company to make hard choices as job cuts roil the tech industry.
Management should publicly set a target for profit margins, increase share buybacks and reduce losses in its portfolio of Other Bets -- the company’s long-shot projects -- TCI Managing Director Chris Hohn wrote Tuesday in an open letter to Alphabet Chief Executive Officer Sundar Pichai.
“We are writing to express our view that the cost base of Alphabet is too high and that management needs to take aggressive action,” Hohn said. “The company has too many employees and the cost per employee is too high.”
A spokesperson for Alphabet didn’t immediately respond to a request for comment. The shares jumped as much as 4.6% to $100.14 after TCI posted the letter. Alphabet stock had fallen 34% this year through Monday’s close.
Google’s advertising juggernaut has begun to show the strain of a slowdown in digital advertising, and its parent company, Alphabet, in October reported third-quarter earnings and revenue that missed projections. As a result of a shaky global economy, job cuts in the technology industry are accelerating, with Meta Platforms Inc. and Twitter shedding thousands of employees in recent weeks and Amazon.com Inc. poised to follow suit. Google hasn’t implemented any major layoffs, though the company has said it was hitting the brakes on additions.
Noting that Alphabet’s headcount has swelled 20% per year since 2017, TCI wrote, “This growth is excessive, both in relation to historic headcount growth and what the business requires.”
Alphabet has pledged to slow hiring, and Chief Financial Officer Ruth Porat told investors last month that the number of new jobs would fall by more than half in the fourth quarter from the previous period. Yet TCI suggested more aggressive action was needed.
TCI has spurred changes at other companies, including Canadian National Railway Co., which named a new CEO this year after a fight with the firm. TCI said Tuesday that it’s been a shareholder of Alphabet since 2017 and currently owns a stake worth more than $6 billion.
Still, activist investors have limited ability to force changes at Alphabet, which has a dual-class stock that company founders Sergey Brin and Larry Page control through super-voting shares. Meta and Snap Inc. also have special share structures that give founders extra voting power.
TCI also called on Alphabet to curb losses in its Other Bets portfolio, in particular at self-driving car unit Waymo.
“Waymo has not justified its excessive investment and its losses should be reduced dramatically,” TCI wrote.
--With assistance from Scott Deveau.
©2022 Bloomberg L.P.
