The New Year has just begun, and thousands of technology and startup employees find themselves unemployed. Layoff monitoring website, Layoffs.fyi, 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.
