Activist investor urges Alphabet to cut costs, boost buybacks
Sean Gallup/Getty Images News

Activist investor TCI Fund Management has urged Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) to slash costs and cut its employee count, citing a "strong conviction" in Alphabet's future.
London-based TCI has been a significant shareholder of Alphabet since 2017 and currently holds more than $6B worth, TCI Managing Director Christopher Hohn says in a letter addressed to Alphabet CEO Sundar Pichai.
Alphabet stock is taking part in the broader market rally: (GOOG) +3.8%, (GOOGL) +3.8%.
"We are writing to express our view that the cost base of Alphabet is too high and that management needs to take aggressive action," Hohn says in the letter. "The company has too many employees and the cost per employee is too high."
He adds that management needs to publicly disclose a target for earnings before interest/taxes margin, "substantially" reduce losses in its long-term "Other Bets" segment, and boost share repurchases.
On headcount, Hohn agrees with recent sentiment from Altimeter Capital's Brad Gerstner, who said it's a "poorly kept secret in Silicon Valley" that companies including Google, Meta and Twitter could achieve the same revenue with far fewer people.
"You have publicly stated that Google should be 20% more efficient. We could not agree more," Hohn says in the letter.
Alphabet also pays some of Silicon Valley's highest salaries, with median compensation at $295,884 as of 2021, he says, calling that 67% higher than at Microsoft.
As for EBIT margin targets for the Google Services segment, "we believe ... at least 40% is reasonable."
In urging cuts to the Other Bets segment, Hohn notes the space has generated about $3B in cumulative revenues over five years, at a cost of $20B in operating losses. The biggest part of Other Bets is self-driving auto unit Waymo, but "enthusiasm for self-driving cars has collapsed and competitors have exited the market," Hohn says.
Meanwhile, share buybacks are now at a run rate of $60B per year, but "nevertheless, Alphabet still has over $116B of cash on the balance sheet ... serving neither shareholders nor the company."