As Google feels the pandemic's sting, here are all the areas of the company where it's cutting costs this year (GOOG, GOOGL)

April 28, 2020

As Google feels the pandemic's sting, here are all the areas of the company where it's cutting costs this year (GOOG, GOOGL)

Sundar Pichai

Google's earnings have given us our first glimpse at the effects of the pandemic on its business, most notably the impact on advertising.
To steel itself against the months to come, Google is taking several measures to cut costs and offset losses from its ads business.
On an earnings call today, the company said it plans to decelerate hiring, and save costs in other areas including capital expenditure.
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Google's advertising business sailed through most of Q1 without suffering too much damage from the coronavirus, but was jolted by a sharp blow to its revenue in the final weeks of March.

The tough times don't look likely to go away anytime soon, according to Google executives like CFO Ruth Porat, who said Tuesday that she antic pates the second quarter will be "a difficult one."

To prepare for the difficult conditions, Google and parent company Alphabet are looking for ways to cut costs, from less business travel for employees to increased automation of certain tasks.

"After a decade of growth there have to be opportunities for added efficiency," Porat said during a conference call on Tuesday.

Earlier this month, Google CEO Sundar Pichai told employees the company would slow hiring in all but select key areas, and more recently slashed its marketing budget for the year.

On Tuesday, Porat and Pichai provided more details about where the company would find savings.

Among the biggest changes:

Headcount —With 123,048 employees on its payroll, Alphabet is a massive organization. And the company started the year intending to get even more massive, with plans to slightly exceed the 20% growth in headcount that it logged in the last three months of 2019.

Now, Porat said , Alphabet instead anticipates a "deceleration" in headcount from that 20% growth rate.

A deceleration from 20% growth still leaves a lot of room for Alphabet's ranks to increase though. The company will keep hiring — there's no total hiring freeze on the horizon — but plans to do so in a "small number of strategic areas" of its business, such as Cloud, which is getting a nice boost right now.

Office space — With reduced hiring plans, and most employees currently working at home, Google won't need as much office space right away. That's one of the main reasons that Google now expects "a modest decrease" in the total amount of capital expenditures in 2020 compared to its $23.5 billion in cap ex in 2019.

"The biggest change in our outlook is a reduction in global office facility investments, due to both the need to pause most of our ground-up constructions and fitouts in response to COVID-19, and our decision to slow down the pace at which we acquire office buildings," Porat said on Tuesday.

Data centers: Google spends billions of dollars creating space not just for its staff, but for its computers. The company's "technical infrastructure" will remain "roughly" at the same level as 2019, Porat said. The company will spend more money on servers however and less on data center construction, much of which is being delayed due to COVID-19.

Marketing spending: Executives confirmed that Google has lowered its "non-business essential marketing" spending for the year, but said there was a "healthy" budget still in place.

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