Activist hedge fund TCI Fund Management called on Google parent Alphabet Inc.
to aggressively cut costs and reduce losses on long-term bets such as self-driving car unit Waymo, claiming the company would be more efficient with fewer employees.
London-based TCI, which said it owned shares worth more than $6 billion in Alphabet, made the requests Tuesday in a letter to Chief Executive Sundar Pichai, writing that it has been a major shareholder since 2017.
“We are writing to express our view that Alphabet’s cost base is too high and that management should take aggressive action,” TCI wrote in the letter, signed by CEO Christopher Hohn. “The company has too many employees and the cost per employee is too high.”
Alphabet did not immediately respond to a request for comment.
It’s rare for big tech companies to face campaigns from activists like TCI. Alphabet and others have made big profits in recent years buying back billions of dollars worth of stock as interest rates remained low in the developed world.
But in recent weeks, steep layoffs have rippled through Silicon Valley, with Twitter Inc. under new owner Elon Musk and Facebook parent company Meta Platforms Inc. each cut thousands of jobs. Amazon.nl Inc.
joined the trend Monday, when The Wall Street Journal and other outlets reported that it plans layoffs that will affect as many as 10,000 workers.
Meta came under pressure last month from investment firm Altimeter Capital, which wrote in an open letter that CEO Mark Zuckerberg needed to take drastic action to streamline the company.
TCI held discussions with former Google executives who suggested the company could be run more effectively with significantly fewer employees, it said in the letter. Alphabet’s number of employees has more than doubled since 2017, it wrote.
“You have publicly stated that Google needs to be 20% more efficient. We totally agreed,” TCI said in the letter.
TCI also asked Alphabet to begin disclosing profit margin targets for the company’s Google Services segment, which includes its core search business. It said a reasonable target would be at least 40%.
Mr. Hohn of TCI is a prominent investor who has made a name for himself by incorporating some of the world’s largest companies, mostly in the service of increased shareholder returns, but also for social causes. Last year, he launched a campaign to force dozens of the world’s largest companies, including Alphabet, to publish plans for cutting carbon emissions and put them to the vote of shareholders.
Mr. Pichai recently stressed that Google needs to become more efficient as the company struggles with an economic slowdown that has shrunk advertising spending in some areas. In July, the Google boss said the company would hire fewer people for the rest of the year while urging employees to be more entrepreneurial.
Alphabet’s Other Bets segment, which includes Waymo and numerous other moonshot companies, should reduce operating losses by at least 50%, TCI wrote in the letter. The unit has long been a major source of expense since Google’s reorganization under Alphabet in 2015, and TCI said it expected operating losses to reach $6 billion this year.
“Unfortunately, enthusiasm for self-driving cars has collapsed and competitors have left the market,” TCI wrote in the letter, pointing out that Ford Motor Co.
and Volkswagen AG
had recently closed businesses. “Waymo has failed to justify its excessive investment and its losses must be drastically reduced.”
Alphabet’s dual-class voting share structure has made it difficult for outside shareholders to push for changes at the company. Google co-founders Sergey Brin and Larry Page will remain on Alphabet’s board of directors and together have a majority of voting rights on the company’s decisions.
Shares of Alphabet rose more than 4% on Tuesday, outpacing gains in the broader stock market. TCI’s $6 billion stake is less than 1% of Alphabet’s more than $1 trillion market value.
Write to Miles Kruppa at [email protected]
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