Topline
TCI Fund Management, the activist hedge fund helmed by U.K. billionaire Christopher Hohn, touted a massive stake in Google parent Alphabet on Tuesday as he called on the company to cut costs by reducing its head count and paying workers less, becoming the latest high-profile investor slamming the formerly high-flying tech sector amid broader market weakness.
In a Tuesday letter, U.K. billionaire and Alphabet investor Chris Hohn urged the Google parent’s CEO … [+]
Key Facts
In a Tuesday letter addressed to Alphabet CEO Sundar Pichai, Hohn urged company management to “take aggressive action” to combat costs he called “too high,” saying the firm has too many employees and is spending too much on individual compensation packages.
“Nearly all technology companies are reducing costs,” Hohn said, pointing to Meta’s 13% head count reduction last week, Amazon reportedly cutting 10,000 jobs and layoffs by Stripe, Twitter, Salesforce and Microsoft.
Hohn acknowledged Alphabet’s “strong revenue growth” of 6% last quarter, but lamented its faster-growing expenses, which grew 18% year over year, saying, “There is no justification” for Alphabet’s outsize compensation, which is among the highest in Silicon Valley at a median of $296,000 last year—67% higher than Microsoft.
In a Monday filing, TCI reported ownership of more than 68 million Alphabet shares, representing about 1% of total shares outstanding and worth about $6 billion; on Tuesday, Hohn said TCI has been a significant shareholder since 2017 and that the stake reflects a “strong conviction in Alphabet’s future.”
Hohn also said Alphabet should increase share buybacks using its $116 billion in cash on hand and reduce losses from its venture capital and private equity division—dubbed “other bets”—which includes self-driving firm Waymo and thermostat maker Nest.
Shares of Alphabet, which did not immediately respond to Forbes’ request for comment, have plummeted 31% this year, even worse than the tech-heavy Nasdaq’s 28% decline.
Forbes Valuation
$7.9 billion. That’s how much 56-year-old Hohn is worth, according to Forbes estimates. The son of a Jamaican car mechanic, Hohn founded London-based TCI in 2003 after stints in consulting and private equity and at hedge fund Perry Capital.
Key Background
Global economies have started to slow down as central banks including the Federal Reserve work to combat inflation by tempering consumer demand with higher interest rates. Recent earnings reports have started to reflect the pressures—particularly in the technology industry. Hohn’s letter, first reported by the Wall Street Journal, comes less than two weeks after Alphabet released earnings that failed to meet analyst expectations, with YouTube ad revenue falling 2% to $7.1 billion despite projections calling for a 3% increase. Meanwhile, Meta shares sank more than 10% following the Facebook parent’s earnings release last month—just days after an investor with more than $300 million worth of shares urged the company to further slash expenses by laying off employees. The company has since laid off 11,000 workers.
Tangent
According to a Bank of America survey released Tuesday, fund managers have allocated the smallest share of their portfolios to technology stocks since 2006.
Further Reading
Recession Fears Hit New High Even As Inflation Slows—Here’s What Fund Managers Predict For 2023 (Forbes)
Source: https://www.forbes.com/sites/jonathanponciano/2022/11/15/billionaire-hedge-fund-investor-urges-alphabet-to-cut-costs-no-justification-for-salaries-that-are-too-high/