Christopher Anthony Hohn-led TCI Fund Management Ltd. has penned an open letter to Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) CEO Sundar Pichai to undertake layoffs and curb costs. The activist investor claims that “the company has too many employees and the cost per employee is too high.” TCI has been a long-term investor in Alphabet since 2017, and its current stake amounts to over $6 billion.
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Hohn recommends that Alphabet set ambitious EBIT (earnings before interest and tax) margin targets, minimize losses at other ventures, including self-driving unit Waymo, and increase share buybacks with the idle cash sitting on its balance sheet.
Further, Hohn worries about the shrinking EBIT margins at Google’s search engine, which is not a labor-intensive business.
Hohn also pointed to the unjustifiably exorbitant salaries paid at Alphabet. He urged the management to reduce the salaries of individuals performing regular work to levels consistent with the industry. Moreover, Hohn noted that TCI projects operating losses in Other Bets to be $6 billion this year and that these should be trimmed by at least 50%.
Regarding Waymo, TCI wrote, “Unfortunately, enthusiasm for self-driving cars has collapsed and competitors have exited the market.” Recently, Ford (NYSE:F) and Volkswagen (DE:VOW) wrote off investments from Argo AI, their ambitious fully autonomous self-driving start-up. Hohn suggests that Alphabet could plan to spin off Waymo if additional outside investors can be found.
Finally, Hohn urged Pichai to announce immediate actions, noting that the above steps will help strengthen Alphabet’s financial performance, boost its stock price, and be in the long-term interests of both shareholders and employees.
Is GOOGL Stock a Good Buy?
With 29 unanimous Buys, GOOGL stock commands a Strong Buy consensus rating. On TipRanks, the average Alphabet stock prediction of $129.54 implies 31.6% upside potential to current levels. Meanwhile, GOOGL stock has lost 32.1% so far this year.
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