Activist Investor TCI Calls on Google Parent Alphabet to Slash Costs

“We are writing to express our view that the cost base of Alphabet is too high and management needs to take aggressive action,” TCI wrote in the letter, signed by Managing Director

Christopher Hohn.

“The company has too many employees and the cost per employee is too high.”

Alphabet didn’t immediately respond to a request for comment.

It is rare for big technology companies to face campaigns from activists such as TCI. Alphabet and others have made large profits while buying back billions of dollars in shares in recent years as interest rates remained low in the developed world.

But steep layoffs have been rippling across Silicon Valley in recent weeks, with Twitter Inc. under new owner

Elon Musk

and Facebook parent

Meta Platforms Inc.

each cutting thousands of jobs.

Amazon.com Inc.

joined the trend Monday, when The Wall Street Journal and other outlets reported it is planning layoffs affecting as many as 10,000 employees.

Meta came under pressure last month from the investment firm Altimeter Capital, which wrote in an open letter that CEO

Mark Zuckerberg

needed to take drastic steps to streamline the company.

TCI held conversations with former Google executives who suggested the company could be operated more effectively with significantly fewer employees, it said in the letter. Alphabet’s head count has more than doubled since 2017, it wrote.

“You have publicly stated that Google should be 20% more efficient. We could not agree more,” TCI said in the letter.

TCI also asked Alphabet to begin disclosing profit margin targets for the company’s Google Services segment, which includes the core search business. It said a reasonable target would be at least 40%.

TCI’s Mr. Hohn is a prominent investor who has made a name taking on some of the world’s biggest companies, usually in service of higher returns for shareholders but also for social causes. Last year he launched a campaign to force dozens of the world’s largest companies, including Alphabet, to publish carbon-emission reduction plans and put them up for shareholder vote.

Mr. Pichai has recently emphasized that Google needs to become more efficient as the company battles an economic slowdown that has crimped advertising spending in some areas. In July, the Google boss said the company would slow hiring for the rest of the year, while urging employees to be more entrepreneurial.

Alphabet’s Other Bets segment, which includes Waymo and a host of other moonshot ventures, should reduce operating losses by at least 50%, TCI wrote in the letter. The unit has long been a large source of costs since Google’s reorganization under Alphabet in 2015, and TCI said it expected operating losses to reach $6 billion this year.

“Unfortunately, enthusiasm for self-driving cars has collapsed and competitors have exited the market,” TCI wrote in the letter, noting that

Ford Motor Co.

and

Volkswagen AG

had recently shut down ventures. “Waymo has not justified its excessive investment and its losses should be reduced dramatically.”

Alphabet’s dual-class voting share structure has made it difficult for outside shareholders to press for changes at the company. Google co-founders

Sergey Brin

and

Larry Page

remain on Alphabet’s board and together control a majority of voting power over company decisions.

Alphabet shares climbed more than 4% Tuesday, outpacing gains in the broader stock market. TCI’s $6 billion stake is less than 1% of Alphabet’s more than $1 trillion market value.

Write to Miles Kruppa at miles.kruppa@wsj.com