Google’s Latest Layoffs Are a Huge Red Flag for GOOG Stock

Stock Market

Google (NASDAQ:GOOG) stock hasn’t benefited even after it announced it would pursue a series of layoffs, would be cutting 12,000 jobs or 6% of the total workforce.

Job cuts are not new for the tech industry. Earlier in the year, competitors Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) laid off a combined 28,000 workers, as they predicted revenue and earnings would slow in 2023. Last week, Google announced another round of layoffs in its News division. Below are some reasons why these latest layoffs are red flags for GOOG stock.

A Closer Look at GOOG Stock

Around 40-50 employees were laid off from Google’s news division in the middle last week. If you take a glance at the tech giant’s quarterly financial performance in 2023, it’s not too difficult to see why job cuts have continued to ensue.

During the first quarter, top-line growth only came in at 2.6% Y/Y, which was well below last year’s 22.9% Y/Y growth. Some of that had to do with companies pulling back on advertising budgets, which directly affect Google’s ad business.

Another reason revenue came in sluggish was due to increasingly search competition as Microsoft’s Bing gained traction amongst users. While second quarter revenue came in stronger at 7.1% Y/Y, growth remained behind that of the same period last year and effectively continued the trend of single-digit growth.

A new round of jobs cuts just show Google still expects revenue growth to be sluggish in the short term and thus require the company to further optimize costs.

Google News Cuts Loom Large

Google News is a powerful, useful, and even liberating tool for Google search users to have at their disposal. The tab works diligently to aggregate news and media from various publishers and news outlets, providing users with content tailored to their interests.

As the world encounters more tumultuous events, being informed is even more important than ever. Controversies, including the Israel-Hamas war along with the Russo-Ukrainian war, have created pockets of disinformation, and layoffs in Google’s new division might and indirectly lead to the proliferation of misleading information.

Regulators in both the United States, Canadaand the European Union have begun to demand companies like Google and Meta Platforms (NASDAQ:META) step up their content moderation processes. Recent layoffs could put Google back under the regulatory microscope.

Google Could Have Retention Issues

Google is well known for its innovative prowess and attracting some of the best minds and talent to work within its many divisions. However, widespread layoffs have the effect of dislodging potentially innovative staff and demotivating current employees.

Of course, to improve GOOG stock, the company needs to prioritize financial performance, but there is a delicate balance the tech giant needs strike. The tech giant has cultivated the reputation of being one of the best companies to work for. That perception helped to bring so much talent to Google in the past.

If layoffs continue as Google simultaneously authorizing billions in share buybacks for shareholders, not only could past workers feel slightly but many current employees could also feel incentivized to bring their talents elsewhere or create startups of their own.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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