Alphabet faces call from activist fund to downsize

Alphabet faces call from activist fund to downsize

Alphabet, Google’s parent company, faced a call from a major shareholder on Tuesday to cut its surging workforce and cut high salaries paid to non-engineers, in the latest sign of pressure on the biggest companies. American tech companies to restructure their businesses for an era of downturn. growth.

TCI, a hedge fund that said it owns about $6 billion in Alphabet shares, called for “aggressive action” including a drastic reduction in Google’s longstanding investments in driverless cars and a sharp increase in buybacks. of shares.

The hedge fund’s appeal, in a letter to chief executive Sundar Pichai, came the day after reports that Amazon was preparing to cut about 10,000 jobs from its organization, or about 3% of the total. Meta, Facebook’s parent company, unveiled plans for a bigger 13% cut last week as it deals with falling ad revenue and the high costs of building the metaverse.

TCI had previously approached Alphabet management about its concerns. “All of Silicon Valley has had similar issues of overhiring and overcompensation and they’re taking action,” hedge fund founder Chris Hohn said in an interview with the Financial Times. “This is a general theme for large tech companies that need to tackle cost. But Alphabet does the opposite.

Alphabet declined to comment.

The rapid pace of hiring at Google’s internet business, which accounts for more than 99% of Alphabet’s revenue, has long been a source of discontent on Wall Street, although concern has grown this year with the slowdown. growth and the acceleration of recruitment. Alphabet has added more than 36,000 workers in the past 12 months, increasing its workforce by almost a quarter, even as advertising revenue has slowed sharply.

Highlighting Alphabet’s strong growth reported before and during the coronavirus pandemic, TCI said cost discipline had not been a “priority” until last year. But he complained that the latest hiring spree had caused the company’s operating profit margin to plummet from 39% last year to 32% last quarter, and that the group’s median salary, nearly $300,000, was two-thirds higher than Microsoft’s.

Pichai wrote to staff in July calling for “greater urgency, sharper focus and more hunger” as the economic outlook grew more uncertain. He also said Alphabet’s hiring would slow for the rest of the year.

Google founders Sergey Brin and Larry Page control 51% of the votes in Alphabet through a special class of voting shares, despite owning less than 12% of the capital, thus protecting them from direct pressure from shareholders.

Hohn said he wouldn’t consider a proxy battle with Alphabet’s board because of founders’ control, but he believed Brin and Page would take steps to cut costs. “I believe these founders are rational and they want the company to be healthy. I think they would rather be richer than poor.

“The CEO says he wants to slow down hiring and be 20% more efficient, but he hasn’t,” Hohn said. “This long-standing excessive and inflated cost growth must now be corrected. It’s out of control.”

In addition to cutting employee pay by cutting stock compensation and other bonuses he pays, Hohn called on Alphabet to drastically cut spending on its so-called Moonshot projects. Much of the $20 billion lost over the past five years on what Alphabet calls its “other bets” has been spent on the Waymo driverless car unit, he said, adding: “It was a failure. There is no revenue model.

TCI’s letter to Alphabet was first reported by The Wall Street Journal. Alphabet’s stock price rose nearly 2% to $97.46 at midday in New York on Tuesday. Its shares have fallen by a third this year.

The London-based activist fund has also held stakes in Twenty-First Century Fox – and has spoken out on its $71 billion deal with Disney – as well as German carmaker Porsche, Canadian National Railway and Airbus Group.

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