Alphabet's profit and sales are growing steadily, but the Google parent remains committed to deep cuts to its expansive real estate portfolio and global workforce as it turns to areas including artificial intelligence.
After spending more than $1.8 billion in expenses related to its restructuring plans, the Mountain View, California-based tech giant will maintain its "much slower pace of hiring" and will "continue to optimize our real estate portfolio" as it redirects the savings to high-growth initiatives, Chief Financial Officer Ruth Porat told analysts Tuesday on the company's call to discuss earnings.
Porat said the company is streamlining its organizational structure, ending deals for new office space and clearing the way to invest in other growth plans, "continuing to build on work we started, and that is ongoing."
Alongside the expenses related to reducing its global real estate holdings, the Silicon Valley company paid more than $2.1 billion last year in severance and other charges related to reducing its workforce. Alphabet employed about 182,500 people by the end of 2023, down from the more than 190,230-person workforce it had the year prior and an unprecedented drop after decades of significant growth.
The company reported fourth-quarter revenue of $86.3 billion, up more than 13% from the same time last year and marking its fourth consecutive quarter of accelerating sales growth. Its profit climbed more than 23% to $23.7 billion for the three months ended Dec. 31.
Revised Priorities
Alphabet's investment plans for the year ahead reflect a sharp turn to focus on profitable growth over the expansion-at-any-cost mentality that dictated some Silicon Valley companies' trajectory in the years leading up to the pandemic.
While the Google parent remains willing to open its wallet on technical infrastructure, its plans for office real estate are far more muted.
The company paid $1.2 billion in the fourth quarter of 2023 alone on expenses related to shrinking its global office footprint, and future cuts remain on the table as Alphabet continues to assess how much physical space it will actually need.
"We're slowing our pace of headcount growth to support our most important growth opportunities," Porat said, adding that those efforts coincide with the company's "focus on optimizing our real estate," which she said includes "how and where we work to reduce our expense growth."
Google has so far listed more than 1.5 million square feet of office space across several offices near its headquarters in Mountain View, California, alone, a figure that doesn't come close to including the millions of square feet it has offloaded in other markets around the world.
As part of a deal announced earlier this year, Alphabet terminated a high-profile deal to fill the One Westside office campus in Los Angeles. The former mall was sold to the University of California for $700 million to convert the empty space into a research park. The tech giant is instead consolidating its Southern California workforce into office space it already leases in the Los Angeles area.
“We’re continuing to take a measured approach to ensuring our real estate investments match the current and future needs of our workforce, business and communities," Scott Foster, Google's vice president of real estate and workplace services, said in a recent statement.
The terminated deal was another example of a tech giant backing away from property commitments made before the pandemic turned the global economy on its head. Google signed the One Westside lease in 2019, shortly before the health crisis forced it to temporarily close offices around the world and its workforce largely adapted to a workweek that didn't require a daily commute.
Google has long been at the forefront of trends that have rippled across the global office market, largely as a leader for offering perks and amenities to attract and retain talent. However, was among some of the world's largest tech companies that were caught by surprise by pandemic-related growth, hired aggressively, and are now walking back investments they had made that no longer line up with their headcounts or real estate needs.
The company, which laid off several hundred of employees earlier this month, leases more than 38.6 million square feet of office and flexible space around the world, according to CoStar data.
Alphabet reported full-year 2023 revenue of nearly $307.5 billion, an 8.7% jump compared to the prior year.