Activist investor TCI Fund Management asks Alphabet to cut costs

Activist investor TCI Fund Management said on Tuesday that Google’s owner’s cost base Alphabet is “too high” and urged management to take “aggressive action”.

In a letter to Alphabet chief executive Sundar Pichai, TCI – who has been a major shareholder since 2017 – said the company had too many employees and the cost per employee was too high.

“Management should publicly disclose an EBIT margin target, significantly reduce losses in other bets and increase share buybacks,” TCI wrote. Other Bets is the segment that includes Waymo and other special projects.

TCI said that despite strong revenue growth, operating leverage has been minimal over the past five years. “In the third quarter of 2022, total expenses increased 18% year over year, while revenue increased only 6%,” he said.

TCI pointed out that “almost all” other technology companies are cutting costs. Facebook owner Meta reduced its workforce by 13% last week, while Amazon reduced its workforce by 10,000, he noted. He added that Microsoft, Selling power, Bandaged and Twitter also downsize.

“Alphabet’s workforce has grown at an annual rate of 20% since 2017,” TCI said. “This growth is excessive, both relative to historical headcount growth and the needs of the business.”

TCI, which currently owns shares valued at more than $6 billion, said: “In a new era of slower revenue growth, aggressive cost management is essential.”

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