Alphabet’s top investor calls for drastic cost-cutting measures

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The letter was delivered to Alphabet CEO Sundar Pichai on Tuesday and was written by TCI, a significant stakeholder in the firm.

The letter requested that the corporation reduce its expenses by, among other things, firing employees and paying those who remained with lesser wages.
Additionally, it stated that the Waymo section of Alphabet’s self-driving car business needed to “dramatically cut losses.”

Alphabet received a letter on Tuesday from TCI Fund Management, one of the company’s largest shareholders. In the letter, TCI Fund Management urged Alphabet to reduce expenses by reducing employee headcount, increasing productivity, and spending less money on long-term investments such as Waymo’s autonomous vehicle division.

According to the letter, Alphabet’s management needs to move rapidly in order to address the excessively high cost base.

The hedge fund with its headquarters in London claims to own Alphabet shares with a market value of $6 billion and has been a key shareholder in the company since 2017. According to an article published in The Wall Street Journal, it is “uncommon for large technology businesses to face campaigns from groups like TCI.” It’s funny how ironic this turns out to be when you consider how much Alphabet has invested.

The letter was written by Christopher Hohn, who serves as managing director of TCI, and it was addressed to Sundar Pichai, who serves as CEO of Alphabet. Hohn is well-respected among institutional investors for his activist stance, which is why he decided to pen the letter.

According to Hohn, the magnitude of Alphabet is one of the primary sources of concern for TCI. The number of employees at TCI has increased by 20% annually since 2017, as indicated by the color-coded graphs of the company’s statistics.

Since that time, the number of individuals employed by Alphabet has more than doubled, going from a little more than 80,000 to almost 190,000.

According to Hohn, the excessive number of workers employed by the corporation was the primary contributor to its high labour expenditures.

According to Hohn, a prominent investor in Silicon Valley named Brad Gerstner was quoted as saying, “It’s not a well-kept secret in Silicon Valley that firms like Google, Meta, Twitter, and Uber could generate the same amount of money with a lot less personnel.” In addition to that, he stated that TCI has engaged in conversations with former Alphabet employees.

TCI was dissatisfied with both Alphabet’s high pay rates as well as its vast number of employees. According to Hohn, the median compensation at Apple is 153% greater than the compensation at the 20 largest publicly traded corporations in the United States.

Even while some of Alphabet’s engineers are exceptionally bright and talented, this does not mean that all of the company’s employees are of the same calibre. “Hohn noted that because a significant portion of the team is accountable for marketing, public relations, and administrative responsibilities, they ought to be paid on par with employees at other technological companies.

Since Alphabet has been incurring more and more financial losses, the firm has announced that it intends to reduce the number of employees it employs this year. However, in comparison to Meta, Twitter, and Amazon, it has not yet fired a significant number of employees and does not plan to do so this year.

In addition, Pichai shares TCI’s view that all workers must have access to an environment that enables them to be productive in their jobs. During an all-hands meeting in August, he reportedly told the employees, “There are serious worries that our overall productivity is not where it needs to be given the amount of individuals we have.”

 

But the issues that TCI was facing weren’t solely due to Alphabet’s employees being overpaid and underperforming on their jobs.

The fund insisted that Alphabet reduce its losses at Other Bets, which provides financing for high-risk initiatives such as Waymo, Calico Biosciences, and later-stage venture capital firm CapitalG.

The benefits have not been significant, which is a great disappointment. Late in the month of October, the corporation announced that it had suffered a loss of $4.5 billion due to “Other Bets.”

TCI used a lot of effort to convince Alphabet to decrease its stake in Waymo. Hohn bemoaned the fact that fewer people are interested in self-driving cars and that many companies had exited the sector in his piece. It follows that “Waymo’s massive investment has not been worth it,” and that “its losses should be cut by a lot.”

Insider made many attempts to obtain a response from Alphabet, but the firm did not immediately respond.

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