Google's Workforce Shake-Up: Is the Quiet Layoff a Warning Sign for Investors?

The New Year has just begun, and thousands of technology and startup employees find themselves unemployed. Layoff monitoring website,, reports that by January 17, some 51 technology firms had terminated the employment of 7,528 individuals.

These terminations imply that 2024 might bring more hardships for the tech sector, following massive layoffs in the preceding year when over 1,150 tech companies laid off over 260,000 employees in 2023.

Alphabet Inc.’s (GOOGL) Google is reducing its workforce, dispensing with several team members from their digital assistant, hardware, and engineering sectors, as stated by the company.

A spokesperson from Google said, “Throughout the second half of 2023, a number of our teams made changes to become more efficient and work better, and to align their resources to their biggest product priorities. Some teams are continuing to make these kinds of organizational changes, which include some role eliminations globally.”

Affected staff include those associated with the voice-activated Google Assistant and the augmented reality hardware team. Additionally, professionals within the central engineering department are also bearing the brunt of these layoffs.

The initial layoff reports concerning the Google Assistant team came from Semafor, while 9to5 Google reported the structural changes affecting the hardware team first. Notifications of the termination have been sent to the involved staff members, with the opportunity extended to them to apply for other open positions within Google.

However, the Alphabet Workers Union, representing a portion of its workforce, has voiced displeasure over these job cuts. The union claimed that it was unethical of GOOGL to continue with the layoffs, especially during a period of significant profit growth for the company. For reference, the tech giant made $76.69 billion in revenues during the third quarter of 2023, recording a net income of $19.69 billion.

Google CEO Sundar Pichai told employees to anticipate more job cuts throughout the year. He further disclosed that the downsizing efforts for the current fiscal year are aimed primarily at eradicating complex levels to streamline execution and accelerate momentum in some areas. The move adds to signs that staff reductions will continue this year as numerous corporates proactively adopt AI and automation solutions to potentiate their operational efficiency.

But why direct resources to AI?

In 2023, GOOGL shares made a dramatic comeback, rocketing by an impressive 54%. This uptick marked a drastic shift from its disappointing 2022 performance, which saw the stock tumble by 39%.

The previous downswing was mainly triggered by a bear market, which severely impacted GOOGL's primary revenue source: digital advertising. With the marketing budgets reduced to preserve financial health during harsh economic conditions, many companies cut back on ad spending, causing a significant drop in GOOGL's year-over-year revenue. As a frontrunner in the online advertising landscape, GOOGL's performance was particularly negatively affected.

However, with the economy rallying back in 2023, companies were more generous with their advertising budgets, prompting a rebound in spending that benefitted GOOGL. That said, it was the technological leaps in AI that truly catalyzed GOOGL's renaissance.

While AI has been on the tech horizon for several years, GOOGL has successfully harnessed this technology to enhance the precision and applicability of its search engine, target digital advertisements, and streamline controls for its Waymo self-driving vehicles.

The advances in GenAI have opened new avenues of opportunity for GOOGL. GenAI is equipped to generate unique content, concise email replies, craft presentations, obtain relevant data from the internet and company databases, and even articulate and debug computer code.

GOOGL's strategic investment in AI and GenAI fuels innovation and augments development for its suite of products and services, including Google Search, Assistant, Cloud, and Workspace.

Directing resources to AI could support the enhancement and expansion of GOOGL's emerging functionalities. Moreover, GOOGL is committing to GenAI to develop revolutionary platforms and tools, like Google AI Studio and Bard that empower developers and users to modify and harness robust AI architectures.

This proactive move also aims to elevate and broaden the realm of AI R&D and fore-front discussions on the ethical and societal implications of AI technology.

What could be the probable impacts of the layoffs?

On a positive note, the impending layoffs at GOOGL have the potential to decrease operating expenses, secure considerable savings, and enhance earnings per share. This could also facilitate GOOGL's increased focus on AI, a critical factor for future growth and attaining competitive leverage.

Conversely, these layoffs pose a risk to GOOGL's innovative potential and capacity to retain talent. The company has garnered acclaim for its unprecedented and multifarious projects that necessitate significant investment and experimentation.

Moreover, these projects create valuable patterns of intellectual property and potential innovations. The workforce reduction may impede GOOGL's long-term objectives and creative potency. It risks tarnishing the brand's reputation as a preferred employer, making it challenging to entice and retain top-notch talent within the industry.

Layoffs can potentially diminish a firm's competitive advantage – conveying a message of weakness or instability to consumers, investors, and rivals. Furthermore, they may pave the way for newcomers or startups who can employ those made redundant or exploit market gaps.

Ultimately, the aftermath of the layoffs is contingent upon GOOGL's ability to navigate the transition effectively while harmonizing its short-term deliverables with long-term aspirations.

For the fiscal first quarter ending March 2024, GOOGL’s revenue and EPS are expected to increase 12.5% and 26.5% year-over-year to $78.48 billion and $1.48, respectively.

Wall Street analysts expect the stock to reach $155.91 in the next 12 months, indicating a potential upside of 8.4%. The price target ranges from a low of $140 to a high of $180.

Bottom Line

While the continued improvement of the economy has worked in GOOGL’s favor, it is the company’s increased interest in AI that has captured investors' attention. The anticipated outcome of this venture, particularly the positioning of Gemini Ultra in comparison to competing brands, remains uncertain.

However, as AI and Language Model (LM) technologies are becoming increasingly ubiquitous, companies successfully implementing these into specialized enterprise verticals for productivity and service enhancements are poised to emerge as leaders. GOOGL is ideally positioned due to its ability to integrate these technologies intensively across myriad business verticals.

Concerns, nevertheless, persist. Reduction in search market share, a core revenue stream for GOOGL, is one such issue. An offsetting strategy could be advanced monetization techniques of emerging developments expected to supersede the search paradigm. Given their broad-based customer (individual and enterprise) network, the potential for effective monetization is promising.

Culture, though, is another concern. Critics have cast doubt on the sustainability of GOOGL's innovative ethos, arguing that as a company grows becoming more bureaucratic, its innovative drive dwindles. A shift from a startup-oriented innovative approach, coupled with financial engineering strategies aimed at appeasing shareholders (including share buybacks) and the departure of employees, may have catalyzed cultural shifts. Notably, GOOGL has endured an exodus of talent into startup ventures and might witness more of it because of additional layoffs.

Beyond affecting employees and their families, layoffs can have a negative long-term impact on a company's performance. Investor confidence in a company’s ‘going concern’ has a direct correlation to its share price.

Although there may be temporary upward spikes in share prices following job cuts, this usually reverses when unemployment surges, leading to a market recession.

Given these factors, investors might find it prudent to place GOOGL on their watchlist, awaiting an opportune moment for investment.

Snap (SNAP): Insider Insights Suggest a Lucrative Long-Term Internet Buy

Shares of Snap Inc. (SNAP), the parent company of leading social media platform Snapchat, with a market cap of over $15 billion, witnessed a 12% uptick after an internal memo from CEO Evan Spiegel revealed ambitious forecasts to have over 475 million daily active users (DAUs) in 2024, above the 447 million Wall Street projection. According to the memo, the company foresees more than 20% growth in its advertising revenue for the year 2024. The firm's 2023 objectives also include achieving an adjusted EBITDA of $500 million.

The positive response from investors comes on the heels of an "incredibly low" sentiment period surrounding SNAP's financial future, as SNAP was the first ad-reliant social media company to signal dwindling ad demand amid macroeconomic challenges such as burgeoning inflation rates and intense competition among social media platforms.

SNAP has endured several financial setbacks in recent years, shedding nearly 80% of its valuation last year while confronting negative top-line growth in the first quarter of 2023. Such figures have prompted genuine concern over the company's long-term viability. With lousy revenue performance and persistent quarterly net losses, it was unclear whether the company could live up to its premium valuation.

Of the nine targets set by SNAP, significant user engagement – manifested through a 10% increase in the time spent by users consuming content has been its sole accomplishment. However, the encouraging growth forecast has sat well with investors grappling with the company's overall underperformance, straddled by a weak advertising market and stiff competition from AI-based solutions.

Though the company confirms SNAP’s revised 20% revenue growth rate and prospective DAU figures as “stretch, internal goals only,” they still offer a promising outlook. Investors would do well not to hinge entirely on these projections, even as they bolster SNAP's growth narrative.

Investors might want to consider the following additional factors:

Developments and Mixed Financials

SNAP recently posted its third-quarter earnings report. The social media firm's revenue rose 5.3% year-over-year to $1.19 billion, surpassing analysts' expectations. The surge was the first after two consecutive quarters of decline. Although the firm's adjusted income dropped by 75% year-over-year to $0.02 per share, it still marginally surpassed the consensus forecast. As of September 30, 2023, its accumulated deficit stood at $11.29 billion.

Moreover, the company witnessed an 11.8% year-over-year rise in DAUs, reaching 406 million. Since introducing its AI chatbot "My AI," the company reports a substantial engagement of over 200 million people who have exchanged over 20 billion messages.

Snap believes these metrics catapult 'My AI' to join the ranks of some of the most widely utilized AI chatbots today. The company has also launched a new innovative feature powered by Generative AI, 'Dreams.' This addition offers Snapchatters the innovative capability of creating generative AI selfies.

Institutional Ownership

Several institutions have recently modified their SNAP stock holdings. Institutions hold roughly 51.5% of SNAP shares. Of the 628 institutional holders, 215 have increased their positions in the stock. Moreover, 69 institutions have taken new positions (62,532,200 shares).

Price Performance

SNAP cleared Wall Street's low bar, but its stock slumped after the report and remains nearly 46% below its IPO price. SNAP’s stock is trading below its 100- and 200-day moving averages, indicating a downtrend.

However, Wall Street analysts expect the stock to reach $10.08 in the next 12 months, indicating a potential upside of 8.4%. The price target ranges from a low of $7 to a high of $14.

Bottom Line

SNAP's bold aspirations for 2024 imply that the company’s visibility may be on the upswing, likely attributable to advancements in its advertising products. These improvements could signal a pivotal moment for SNAP, potentially heralding the return of solid growth.

SNAP’s inflated valuation is evident from its forward non-GAAP P/E and EV/Sales of 135.63x and 3.44x, 910.3% and 101.4% higher than the industry averages of 13.42x and 1.71x, respectively.

However, it is noteworthy that if SNAP’s revenue growth rates exceed 20% and adjusted EBITDA increases to $500 million by year-end 2023, the stock could be highly undervalued.

Looking forward to the remainder of the year, SNAP’s management has recognized halts in spending from many brand-focused ad campaigns following the ongoing Middle East conflict. Because of this, the company refrains from issuing formal guidance for the fourth quarter of 2023.

Despite this, internal forecasts predict fourth-quarter revenue between $1.32 billion and $1.375 billion, or a growth of 2% to 6%, implying a continued surge in DAUs to between 410 and 412 million.

Analysts expect its revenue for the fiscal fourth quarter ending December 2023 to increase 4.6% year-over-year to $1.36 billion, while its EPS is expected to decline 63% year-over-year to $0.05.

Due to SNAP’s stretched valuations, mixed financials, and varying analyst estimates, investors should proceed with caution. A more lucid understanding of SNAP’s potential for sustainable growth might be necessary before confident investment decisions can be made. Hence, it could be wise to wait for a better entry point in the stock.