TCI raised issues with the tech giant’s headcount growth, employee compensation and its Other Bets division, saying cost discipline has not been a priority for the company.
An activist hedge fund has urged Google parent company Alphabet to take “aggressive action” to make the company more efficient in a “new era of slower revenue growth”.
In a letter to Alphabet and Google CEO Sundar Pichai, TCI Fund Management said the tech giant has too many staff and that the cost per employee is too high.
TCI – which owns Alphabet shares worth more than $6bn – said cost discipline has not been a priority for the company due to a period of high revenue growth between 2017 and 2021.
“However, cost discipline is now required as revenue growth is slowing,” it added. “Cost growth above revenue growth is a poor sign of financial discipline.”
The hedge fund said conversations with former Alphabet executives suggest the company could be operated efficiently with “significantly fewer employees”.
“You have publicly stated that Google should be 20pc more efficient,” TCI told Pichai. “We could not agree more”.
TCI said Alphabet’s headcount has grown at an annual rate of 20pc since 2017 and called this level of growth “excessive”. The activist investor pointed to other tech companies that have recently announced plans to reduce headcounts and cut costs.
TCI also referenced reports that Amazon could cut up to 10,000 staff across its global workforce from this week.
In its quarterly report last month, Alphabet said total headcount was 186,779, up from 150,028 in the same period last year. However, Pichai said on an earnings call that headcount growth will be “significantly lower” this quarter.
TCI also said that compensation per employee at Alphabet is too high. The activist investor said compensation at Google’s parent company was 153pc higher than the 20 largest listed tech companies in the US, according to an analysis by S&P Global.
Among the cost-cutting measures listed, TCI urged Alphabet to reduce the annual losses in its ‘Other Bets’ division by 50pc. The investor said this division has generated $3bn in cumulative revenues over the last five years, while incurring $20bn in cumulative operating losses.
This division includes various start-up ventures such as the autonomous vehicle company Waymo.
“Unfortunately, enthusiasm for self-driving cars has collapsed and competitors have exited the market,” TCI said. “Waymo has not justified its excessive investment and its losses should be reduced dramatically.”
TCI noted that Ford and Volkswagen made the decision last month to pull the plug on their self-driving car ventures.
“In a new era of slower growth, aggressive cost management is essential,” TCI told Pichai. “We look forward to your announcement of a clear action plan as a matter of urgency.”
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