The economy’s health is currently the main concern of companies and investors.
Will the economic machine slow to the point of seizing up? The Federal Reserve will continue to aggressively raise interest rates more sharply than many investors expected. Some economists expect the monetary policies of the central banks plus the energy crisis in Europe to cause a hard economic landing, or recession.
The Fed action is a particularly bad sign for technology groups, whose products are often the first to be abandoned by consumers and households in difficult times. When rates are rising, companies tend to postpone their investments, while investors most often opt for caution and liquidate risky assets.
Sundar Pichai, chief executive of Alphabet (GOOGL) , parent of search and cloud giant Google, has just confirmed that the economic horizon is blurry.
‘Very Uncertain’ About Economy
“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.”
A recession can significantly hurt revenue at Google and streaming service YouTube by prompting companies to slash their advertising and marketing budgets in response to reduced consumer and household spending. Advertising is the cash cow of both platforms.
The Mountain View, Calif., company aims to get out front if this worst-case scenario materializes.
Pichai, who had sent a worrying warning about the economy in July, wants to make the company 20% more efficient than it is at present, with measures including job cuts.
During the discussion with the journalist and host Kara Swisher, the 50-year-old executive notably acknowledged that Google had been “slower” to react after its workforce recently surged.
“We want to make sure as a company, when you have fewer resources than before, you are prioritizing all the right things to be working on and your employees are really productive, that they can actually have impact on the things they’re working on, so that’s what we are spending our time on,” Pichai told Swisher.
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Swisher asked Pichai effectively which concrete steps he’d be taking to make Alphabet more efficient.
“Across everything we do, we can be slower to make decisions,” Pichai said. “You look at it end-to-end and figure out how to make the company 20% more productive.”
He then brought out an example from the past, in particular how the group had merged YouTube Music and Google Play Music.
Jobs Will Be Cut?
“Sometimes there are areas to make progress [where] you have three people making decisions, understanding that and bringing it down to two or one improves efficiency by 20%,” the executive said, without making any announcement on the number of jobs that might be cut.
In July, the head of human resources, Fiona Cicconi, had indicated in an all-hands meeting with employees that Google was “not currently looking to reduce Google’s overall workforce.”
But she added: “We can’t be sure of the economy in the future.”
During the second-quarter-earnings call, Chief Financial Officer Ruth Porat told analysts that the company was slowing 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 announced in late July second-quarter results below expectations. Net income fell 14% year-over-year to $16 billion. Quarterly revenue increased 13% to $69.7 billion. This was below the $69.9 billion anticipated by Refinitiv.
Overall, Google’s ad revenue grew 12% to $56.3 billion, with YouTube’s advertising revenue at $7.34 billion, up 4.8% from a year earlier.
