- Alphabet is laying off 12,000 staff as it faces a "different economic reality" than it planned for.
- The decision to reduce head count comes as most of its Silicon Valley peers have already made cuts.
As many Silicon Valley firms made deep cuts to their workforces, Google's parent company, Alphabet, remained one of the last firms standing without significant layoffs. But no more.
On Friday, Sundar Pichai, the CEO of Alphabet, announced that he was cutting about 12,000 jobs after "dramatic growth" earlier in the pandemic as demand for digital services boomed.
"To match and fuel that growth, we hired for a different economic reality than the one we face today," Pichai said in a blog post.
Amazon, Meta, Salesforce, and Microsoft have all slashed tens of thousands of jobs in recent months as interest rates have risen to tackle soaring inflation. This leaves Apple as the last of the major tech companies to avoid layoffs.
Having enjoyed a bull run over the past decade, fueled by the era of cheap money, tech's incumbents are reckoning with a new reality. Here's how the Alphabet's cuts compare with the rest.
Some companies cut deeper than others
Before Alphabet's layoffs announcement, Wall Street was eyeing whether Alphabet would institute layoffs.
Mark Schilsky, a technology, media, and telecom analyst at Bernstein, wrote in a newsletter Tuesday that "Google is still on an island."
"Despite seemingly all of its internet peers announcing job cuts, Google likely hired another 6K employees in 4Q22," he added. "For investors, this intransigence in the face of a rapidly slowing topline is maddening."
Mark Shmulik, another Bernstein analyst, said in a note to a client: "Google has aircover for layoffs as every other Internet company that matters has now done layoffs."
The 12,000 figure shared by Pichai on Friday suggests Alphabet layoffs are roughly in line with most of its peers.
Alphabet's layoffs amount to a little over 6% of its workforce. Amazon's layoff of 18,000 people represented about 6% of its corporate workforce. And Microsoft is laying off 10,000 people, or about 5% of its full-time staff.
The deepest cuts have come from Meta, whose shares plunge as it doubled down on its ambitions to build the metaverse.
Meta's layoff of more than 11,000 employees — announced in November — worked out to about 13% of the company's overall workforce.
Alphabet's edge on Meta
Both Meta and Alphabet have few sources of revenue beyond ads. According to filings, 98% of Meta's revenue comes from ads, and 87% of Alphabet's revenue comes from advertising. Given there's a global downturn in ad spending, it's fair to wonder why Alphabet isn't cutting as aggressively as Meta.
For Bernstein's Schilsky, despite Google's head count growing by 37,000 employees over the past four quarters, it wasn't "the most egregious" expansion. That title goes to Meta.
This wouldn't be a problem, he said, if Meta's revenue per employee hadn't fallen over the past 12 months from $1.6 million per employee to $1.4 million. Google's revenue per employee over the past 12 months, on the other hand, "is still higher than where it was right before Covid began," Schilsky wrote.
Schilsky added that Meta's head count reduction put them back at levels they were operating at toward the end of 2021, meaning they had "barely rewound the clock".
Google's layoffs are even less of a rewind. The company added 12,765 employees between the second and third quarter of 2022, according to filings, meaning the layoff of 12,000 staffers still won't reduce head count below where it was at in mid-2022.
"Even with these cuts, they've still grown their head count by over 16% in the last year, so this feels more like a cautious cost-conscious approach rather than drastic action," Stevie Buckley, a cofounder of tech-hiring platform Talent Stuff, said.
The difference likely comes down to bets. There's broad skepticism about Meta's pivot to the metaverse, seen by many as an expensive and speculative idea that could take years to pay off.
Alphabet, meanwhile, is betting big on artificial intelligence as it faces down new competition from OpenAI and others. AI is heating up as an investment area, and Google has a commanding presence in the space, with thousands of top-tier machine-learning engineers on staff.
Dan Ives, an analyst at Wedbush Securities, wrote in a note to clients Friday morning that Wall Street wanted "these management teams to get ahead of the storm and preserve margins and the bottom-line."
The companies cutting were previously "spending money like 1980's rock stars," he wrote.