Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), Google’s parent company, disclosed today that it would lay off about 12,000 of its employees. These latest tech layoffs come amid rising interest rates, a slump in digital advertising, and as Google faces its first significant competitive threat in many years.
More About the Dismissals
Google’s roughly 12,000 layoffs will reduce Alphabet’s total workforce by 6% and will affect all of the corporation’s units and geographic locations, The Wall Street Journal reported. However, higher percentages of employees will lose their jobs at a number of Alphabet’s units, such as “recruiting and projects outside of the company’s core businesses, ” The Journal explained.
The cuts announced today are in addition to the positions eliminated at Alphabet’s life sciences division, Verily, earlier this month.
The Reasons for the Google Layoffs
In a message to Alphabet’s employees, CEO Sundar Pichai explained that the company had added employees during “periods of dramatic growth… over the past two years.” However, the economic environment has changed since that time, he stated.
Indeed, consumers in the last six months have spent much more of their money on services, including travel and other experiences, than goods. The latter trend, in turn, may be a factor behind a slump in digital advertising that has emerged in recent months. Despite Alphabet’s diversification into hardware and cloud hosting services, the company still obtains the lion’s share of its revenue from digital advertising.
At the same time, higher interest rates have hindered the technology sector’s growth, and there are signs that the latter trend is slowing the growth of spending on the cloud. In recent years, the revenues of Google Cloud have been growing significantly, and the unit has become a meaningful part of the company’s overall business. In 2021, for example, the division generated 7.5% of the company’s revenue.
An Emerging Threat
After investing $1 billion in the company that launched the suddenly popular ChatGPT chatbot, Microsoft (NASDAQ:MSFT) intends to incorporate ChatGPT’s technology in its Bing search engine. Consequently, Google’s search engine may soon face its first, meaningful threat in many years. And, layoffs aside, the company is still preparing for a fight.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.