The firm is convinced that a sharp slowdown in growth will have an impact on advertising revenues, its main source of income.
For a few months now, the group has therefore been trying to prepare for a dark scenario as the Federal Reserve continues to aggressively raise its rates to fight inflation at its highest in 40 years.
For many experts, this monetary policy risks causing the so-called hard landing for the economy, in other words a recession. Alphabet executives seem to share this analysis as CEO Sundar Pichai has just warned against what he called "the toughest macroeconomic conditions" in the past 10 years.
'We Don't Get to Choose'
"Look, I hope all of you are reading the news, externally," Pichai told employees during an all-hands meeting held this week in New York. "The fact that you know, we are being a bit more responsible through one of the toughest macroeconomic conditions underway in the past decade, I think it’s important that as a company, we pull together to get through moments like this.”
Pichai was trying to justify why the company was taking drastic cost-cutting measures while profits remained strong. Alphabet announced in late July a net income of $16 billion for the second quarter. Quarterly revenue increased 13% to $69.7 billion.
But overall the results were below expectations.
"We don’t get to choose the macroeconomic conditions always," Pichai told employees.
Google just canceled the next version of its Pixelbook laptop and dissolved the team responsible for building it, according to reports.
The company has also made cuts at its Area 120 tech incubator whose goal was to keep some of the company’s talent in-house, according to Silliconangle.com. Basically, Google is reducing funding and cutting about half of the unit’s current projects and teams.
According to CNBC, Alphabet has also cut several perks, travel and entertainment budgets.
Google did not respond to TheStreet's requests.
How Google Will Reduce Its Workforce
At the beginning of September, Pichai had already begun to prepare minds for possible layoffs to come.
"The more we try to understand the macroeconomy, we feel very uncertain about it," Pichai said at the 2022 annual Code Conference in Los Angeles on Sept. 6. "The macroeconomic performance is correlated to ad spend, consumer spend and so on."
He then added that he wanted to "make the company 20% more productive."
It is therefore unsurprising that one of the questions asked by the employees in the all-hands meeting was to know how he intended to achieve this goal.
"I think you could be a 20-person team or a 100-person team, we are going to be constrained in our growth in a looking-ahead basis,” Pichai responded. "Maybe you were planning on hiring six more people but maybe you are going to have to do with four and how are you going to make that happen? The answers are going to be different with different teams.”
He continued: "Sometimes we have a product launch process, which has probably, over many years, grown more complicated than maybe it needs to be,” Pichai elaborated. "Can we look at that process and maybe remove two steps and that’ll be an example of making something 20% more efficient? I think all of us chipping in and doing that across all levels, I think can help the company. At our scale, there is no way we can solve that unless units of teams of all sizes do better.”
Pichai assured that Alphabet would continue to invest in projects such as quantum computing but at the same time it had to adapt to the new reality.
In times of uncertainty, as at present, the company must be "smart", "frugal", "scrappy" and "more efficient," the CEO added.
During the second-quarter-earnings call, Chief Financial Officer Ruth Porat told analysts that the company was slowing down hiring, which would enable it to reduce costs.
"Given the uncertain global economic outlook and the hiring progress achieved to date, as Sundar previously announced, we intend to slow the pace of hiring," Porat said. "We expect our actions on hiring to become more apparent in 2023."
Alphabet employed 174,014 people as of June 30, up 21% compared to June 30, 2021 according to a regulatory filing.