Google Might Need to Be Un-Google-Like

Meta’s announcement in early November that it would lay off 13% of its workforce sparked speculation that Google might have to follow. Both depend on online advertising for most of their revenue, and that market is taking a hard hit from the slowing global economy. Analysts estimate that ad revenue for Google-parent

Alphabet

GOOG 1.60%

grew just 9% in 2022 compared with 43% the previous year, while Facebook’s parent is expected to show an annual ad revenue decline for the first time ever, according to FactSet. Advertising revenue growth for both is expected to stay in single-digit territory in 2023. 

But Google is no Facebook. The latter’s hard pivot into being a “metaverse company” had sparked a rebellion among its investors—particularly following third-quarter results in late October where the company left its ambitious spending plans unchanged. Meta’s share price had collapsed more than 70% for the year before the company announced its layoff plan two weeks following that report. 

Alphabet’s stock price has vastly outperformed Meta’s over the last year—even with the latter’s rally since its restructuring announcement. Search advertising has also proven more resilient to both the slowing economy and changes made by

Apple

to its mobile platform, as opposed to social-network ads on platforms like Facebook and Snap. And Alphabet remains strong financially speaking, with more than twice Meta’s net cash balance and trailing 12-month free cash flow. 

Still, Google hasn’t escaped the pain of the advertising downturn. Operating margins in the core Google Services segment that mostly reflects the ad business fell 7 percentage points in the third quarter from a year earlier. That put a further spotlight on the company’s blistering head-count growth: More than 30,000 new Googlers were added to the rolls in the first nine months of 2022—more than the company has added in any full year prior.

Alphabet executives promised in the third-quarter call that head-count growth would slow significantly, but that might not prove enough in a market where investors are looking for more drastic cost reductions. Google makes billions a year on intellectual property such as search algorithms, so the people who develop that property are its greatest asset—and cost center. Alphabet’s median employee pay for 2021 totaled $295,884—the highest in the S&P 500, according to calculations by The Wall Street Journal.

Per a report by CNBC last month, Google is adopting a new employee-ranking system that would result in more workers getting lower performance scores, and thus being more likely to be “managed out.” The company has never done large-scale layoffs in its core business; a major head-count reduction in 2013 was the result of cuts in the Motorola business the company then owned. The idea of mass layoffs strike deep at the heart of the company’s employee-centric culture. Google used its first initial public offering fling in 2004 to tout some of its perks—including “meals free of charge, doctors and washing machines”—as a competitive advantage to keep workers engaged and productive. “Expect us to add benefits rather than pare them down over time,” the filing read. 

But Google had about 1,900 staffers then, compared with nearly 187,000 now. And the recent hiring surge has brought the company’s trailing 12-month revenue per employee down 8% from the start of the year to the end of the third quarter. With rivals actively looking to do more with less, some Googlers may need to start springing for their own laundry again.

Write to Dan Gallagher at [email protected]

Meta’s announcement in early November that it would lay off 13% of its workforce sparked speculation that Google might have to follow. Both depend on online advertising for most of their revenue, and that market is taking a hard hit from the slowing global economy. Analysts estimate that ad revenue for Google-parent

Alphabet

GOOG 1.60%

grew just 9% in 2022 compared with 43% the previous year, while Facebook’s parent is expected to show an annual ad revenue decline for the first time ever, according to FactSet. Advertising revenue growth for both is expected to stay in single-digit territory in 2023. 

But Google is no Facebook. The latter’s hard pivot into being a “metaverse company” had sparked a rebellion among its investors—particularly following third-quarter results in late October where the company left its ambitious spending plans unchanged. Meta’s share price had collapsed more than 70% for the year before the company announced its layoff plan two weeks following that report. 

Alphabet’s stock price has vastly outperformed Meta’s over the last year—even with the latter’s rally since its restructuring announcement. Search advertising has also proven more resilient to both the slowing economy and changes made by

Apple

to its mobile platform, as opposed to social-network ads on platforms like Facebook and Snap. And Alphabet remains strong financially speaking, with more than twice Meta’s net cash balance and trailing 12-month free cash flow. 

Still, Google hasn’t escaped the pain of the advertising downturn. Operating margins in the core Google Services segment that mostly reflects the ad business fell 7 percentage points in the third quarter from a year earlier. That put a further spotlight on the company’s blistering head-count growth: More than 30,000 new Googlers were added to the rolls in the first nine months of 2022—more than the company has added in any full year prior.

Alphabet executives promised in the third-quarter call that head-count growth would slow significantly, but that might not prove enough in a market where investors are looking for more drastic cost reductions. Google makes billions a year on intellectual property such as search algorithms, so the people who develop that property are its greatest asset—and cost center. Alphabet’s median employee pay for 2021 totaled $295,884—the highest in the S&P 500, according to calculations by The Wall Street Journal.

Per a report by CNBC last month, Google is adopting a new employee-ranking system that would result in more workers getting lower performance scores, and thus being more likely to be “managed out.” The company has never done large-scale layoffs in its core business; a major head-count reduction in 2013 was the result of cuts in the Motorola business the company then owned. The idea of mass layoffs strike deep at the heart of the company’s employee-centric culture. Google used its first initial public offering fling in 2004 to tout some of its perks—including “meals free of charge, doctors and washing machines”—as a competitive advantage to keep workers engaged and productive. “Expect us to add benefits rather than pare them down over time,” the filing read. 

But Google had about 1,900 staffers then, compared with nearly 187,000 now. And the recent hiring surge has brought the company’s trailing 12-month revenue per employee down 8% from the start of the year to the end of the third quarter. With rivals actively looking to do more with less, some Googlers may need to start springing for their own laundry again.

Write to Dan Gallagher at [email protected]