Google Layoffs Only The Latest In Tech Sector Bloodbath

Alphabet Inc GOOG GOOGL shares rallied 4.9% on Friday after the Google parent company became the latest tech giant to announce layoffs.

What Happened: On Friday, Google CEO Sundar Pichai sent an email to the company's staff informing them that Alphabet will begin laying off 12,000 employees immediately.

Related Link: Another Tech Giant Prepares For Major Layoffs, This Time 11,000 Jobs Will Be Cut: Report

In his email, Pichai said the company had undergone periods of extreme growth in the past two years.

"To match and fuel that growth, we hired for a different economic reality than the one we face today," he said.

Why It's Important: Elevated inflation and rising interest rates have forced several big-name tech companies to issue aggressive layoffs in recent months to rein in costs.

On Wednesday, Amazon.com, Inc. AMZN announced it would be laying off more than 18,000 workers and Microsoft Corp. MSFT announced its own round of 10,000 job cuts. After Tesla Inc TSLA CEO Elon Musk acquired Twitter in October, he cut more than half the company's headcount. In November, social media giant Meta Platforms Inc META announced it would be laying off more than 11,000 employees, or roughly 13% of its workforce.

Related Link: 96% Of Workers On The Hunt For New Opportunities: The Great Resignation Continues

Investors have generally reacted positively to the layoffs and are optimistic the labor cost reductions will help boost earnings in 2023 and beyond.

On Friday, CFRA analyst Angelo Zino said investors should also keep the 12,000 Alphabet layoffs in perspective given the company has hired more than 50,000 employees in the past two years.

"Although the sharp increase in headcount helped create a profit recession for GOOGL (Y/Y net income/EPS declines) last year, we think a greater focus on opex cuts supports our view of a margin trough in the first half of 2023," Zino said.

CFRA has a "buy" rating and a $113 price target for Alphabet.

Benzinga's Take: It may initially seem alarming for a growth company like Alphabet to lay off workers, but periods of expansion and cost-cutting are perfectly natural parts of the economic cycle. Big tech growth slowed significantly in 2022, which has shifted investors' focus from expansion to profitability for the time being.

Photo: Andrey_Popov via Shutterstock