Alphabet activist investor: GOOG stock price decline spurs TCI Fund Management to call for cost cuts at Google parent
An Alphabet activist investor has called on Google’s parent to dramatically cut costs and reduce staff numbers over the coming months.
TCI Fund Management, which has been a shareholder since 2017 and has a $6bn stake in the business, has demanded “aggressive action” be taken. Its calls come as the Alphabet stock price has lost a third of its value in 2022, falling over 30% year-to-date as of 23 November.
Alphabet (GOOG) live stock price
But what comes next for the company? Here we take a close look at recent Alphabet stock news, examine how the share price has performed, and gauge the likely impact of the activist investors.
What is Alphabet?
Alphabet is a holding company of which search engine giant Google is a wholly owned subsidiary and generates 99% of its revenue. It trades on the Nasdaq stock exchange under the ticker ‘GOOGL’ for Class A shares. The firm’s Class C shares trade under ‘GOOG’.
It was created by a corporate restructuring of Google in October 2015. Google went public in 2004. Shares were priced at $85 each, giving it a valuation of $23bn.
As well as Google, Alphabet includes emerging businesses at various stages of development that operate as independent companies. They are collectively known as Other Bets. The company’s headquarters are in Mountain View, California.
What is your sentiment on GOOG?
Alphabet activist investor: What is it demanding?
In a letter, Christopher Hohn, activist investor TCI’s managing director, said Alphabet’s cost base was too high and it had too many people on the payroll.
“Our conversations with former executives of Alphabet suggest that the business could be operated more effectively with significantly fewer employees,” he wrote.
He noted that Meta’s staff numbers have been reduced by 13% and Amazon (AMZN) by 10,000, while Microsoft (MSFT), Salesforce (CRM), Stripe, and Twitter were also making cuts.
“Alphabet’s headcount has increased at an annual rate of 20% since 2017,” he added.
“It has more than doubled since 2017. This growth is excessive, both in relation to historic headcount growth and what the business requires.”
The Alphabet activist investor added that Alphabet paid some of the highest salaries in Silicon Valley, quoting analysis by S&P Global that put median compensation at the business as 67% higher than at Microsoft.
“We acknowledge that Alphabet employs some of the most talented and brightest computer scientists and engineers, but these represent only a fraction of the employee base,” he added.
Meanwhile, the Alphabet stock has been trading over 30% lower year-to-date, amid broader negative sentiment in the markets.
What do analysts think of the Alphabet stock value?
In the wake of the Alphabet activist investor demands, how do analysts see the stock? Do they believe there is any merit in the comments made by activist investor TCI?
The stock was rated as a ‘strong buy’, according to the views of 28 analysts compiled by TipRanks as of 23 November – with all of them having ‘buy’ recommendations in place. Their consensus average price target was $129.18.
The highest forecast, meanwhile, suggested the Alphabet stock price could hit $160, while the most pessimistic had pencilled in an increase to $114.
According to Danni Hewson, financial analyst at AJ Bell, investors expect the impending global downturn will continue to eat away at Alphabet’s advertising revenue. She told Capital.com:
Costs have skyrocketed, she pointed out, with staffing accounting for a large percentage of overheads. In addition, some long-term investments made have come under scrutiny.
“The World Cup is likely to give Alphabet an end of year bounce, but it can’t be complacent, tricky times are here to stay awhile and investors will want value for money,” she added.
Ali Mogharabi, senior equity analyst at Morningstar, has a fair value estimate of $160 on the stock and pointed out third quarter results were disappointing. He wrote in a note on 26 October:
Assuming less uncertainty in the macroeconomic environment, plus the monetisation of YouTube Shorts, Mogharabi expects advertising revenue growth to return to double-digit levels in 2023.
Note that analyst predictions can be wrong and shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, looking at the latest news, a wide range of commentary, technical and fundamental analysis.
Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose.
FAQs
Is Alphabet publicly traded?
Yes. It trades on the Nasdaq under the ticker: GOOGL for Class A shares, GOOG for Class C shares.
Who owns the Alphabet?
Alphabet was 61.83% owned by institutions, according to Nasdaq data, as of 23 November. There were 3,488 institutional shareholders listed, including Vanguard Group, BlackRock and T.Rowe Price.
Is Alphabet a good stock to buy?
Whether Alphabet is a suitable investment depends on your own investment objectives – and the opinion based on your own research. Remember, it’s important to reach your own conclusion of the company’s prospects and likelihood of achieving analysts’ targets.
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