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Google (NASDAQ:GOOGL) is exhibiting signs of stress that portend a bleak scenario when it comes to its advertisement revenue. As an illustration, reports surfaced today that indicate that the tech behemoth has canceled thousands of job offers, primarily in the temporary and contract work arena.
As per the New York Times, Google sent an email to contracting agencies last week that stated:
“We’re slowing our pace of hiring and investment, and are not bringing on as many new starters as we had planned at the beginning of the year.”
Google went on to inform that it “will not be moving forward to onboard” the employees that these agencies had already recruited on behalf of the tech giant.
As a refresher, Google currently has 123,000 full-time employees along with a force of about 130,000 contract and temporary workers. The company’s full-time employees receive a wider spectrum of perks along with higher average salaries.
Following weeks of delay in which Google dithered and failed to notify a formal date for the commencement of their jobs, over 2,000 people recruited from all over the globe are now believed to have been axed as a result of this new policy.
This development only serves to highlight that even the most valuable companies are not immune to the ravages of the ongoing coronavirus (COVID-19) pandemic. Earlier in April, Google reduced its marketing budget for the second half of 2020 by as much as 50 percent, as per the internal documents reviewed by CNBC.
In mid-April, an internal memo from Google’s CEO, Sundar Pichai, informed employees that the company intended to significantly scale-down its hiring process for the rest of 2020, barring key strategic areas. Then, in late April, Google informed its marketing employees that it was freezing the hiring process for full-time as well as contractual positions.
Due to the severity of the ongoing economic retrenchment, it is not unreasonable to assume that Google is facing serious headwinds from a decline in advertisements as companies clamp down on extraneous expenses in order to preserve precious liquidity in this era governed by the realities of a pandemic.
Bear in mind that, prior to the onset of COVID-19, Google was anticipating an increase in its marketing expenditure. For reference, the company expended $18.46 billion on marketing and sales during 2019. Also, the tech giant increased its headcount by at least 15 percent during the previous year.
It should be noted that Alphabet, Google’s parent company, reported $41.16 billion in revenue for the quarter that ended in March 2020. During the pertinent quarter, Google’s advertising revenue from YouTube amounted to $4.3 billion while its cloud segment contributed $2.78 billion to the company to the top-line metric.
While Alphabet’s CFO, Ruth Porat, noted during the earnings call that the "performance was strong during the first two months of the quarter," she went on to caution that the company witnessed a significant decline in advertising revenue since March 2020. Of course, the recent actions by Google only bolster this cautionary outlook.
Year to date, Google’s stock has generated a return of 5.89 percent, corresponding to a market capitalization of $962.35 billion. On the other hand, the benchmark S&P 500 index has generated a loss of 6.22 percent in the same timeframe.