- Alphabet is laying off 12,000 staff due to a "different economic reality than the one we face today."
- The decision to reduce headcount comes as most of its Silicon Valley peers have already made cuts.
- Here's how cuts at the Google parent company compare with the rest of the tech sector.
As many Silicon Valley firms made deep cuts to their workforce, Google's parent company, Alphabet, remained one of the last firms standing without significant layoffs. But no more.
On Friday, Sundar Pichai, CEO of Alphabet, announced that he was cutting around 12,000 jobs after "dramatic growth" during 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 been forced to slash tens of thousands of jobs in recent months as interest rates rose 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 last decade fuelled by the era of cheap money, tech's incumbents are now being forced to reckon with a new reality. Here's how the Alphabet's cuts compare with the rest.
Some companies cut deeper than others
Prior to Alphabet's layoffs announcement, Wall Street was eyeing whether Alphabet would institute layoffs or not.
Mark Schilsky, TMT analyst at Bernstein, wrote in a newsletter on 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," Schilsky wrote. "For investors, this intransigence in the face of a rapidly slowing topline is maddening."
"Google has aircover for layoffs as every other Internet company that matters has now done layoffs," wrote Bernstein analyst Mark Shmulik in a note to a client.
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 represents 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 so far come from Meta, which saw its shares plunge as it doubled down on its ambitions to build the metaverse.
Meta's layoffs of more than 11,000 employees — announced in November — work out to around 13% of the company's overall workforce.
Alphabet's edge on Meta
Given that both Meta and Alphabet have few sources of revenue beyond ads. According to filings, 98% of Meta's revenue currently comes from ads, and 87% of Alphabet's revenue comes from advertising. It's fair to wonder why Alphabet isn't cutting as aggressively as Meta.
For Bernstein's Schilsky, despite Google's headcount growing by 37,000 employees over the last four quarters, it wasn't "the most egregious" expansion. That title goes to Meta.
This wouldn't be a problem, he suggests, if Meta's revenue per employee hadn't fallen over the last 12 months $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," he wrote.
Schilsky added that Meta's headcount reduction only put them back at levels they were operating at towards 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 new employees between Q2 and Q3 of 2022, per filings, meaning the layoff of 12,000 staff still won't reduce headcount below where it was at in mid-2022.
"Even with these cuts, they've still grown their headcount by over 16% in the last year so this feels more like a cautious cost-conscious approach rather than drastic action," said Stevie Buckley, cofounder of tech hiring platform Talent Stuff.
The difference likely comes down to future 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 payoff.
Alphabet, on the other hand, is betting big on AI, and 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, analyst at Wedbush Securities, wrote in a note to clients Friday morning that Wall Street wants "these management teams to get ahead of the storm and preserve margins and the bottom-line."
The companies currently cutting were previously "spending money like 1980's rock stars," he wrote.