Google Parent’s Revenue Growth Slows as Tech Giant Embarks on Multi-Billion-Dollar Real Estate Expan
Sales growth at Google parent company Alphabet Inc. may be losing pandemic-era steam, but the Silicon Valley tech giant isn't slowing plans to invest billions of dollars in expanding its national real estate portfolio.
The Mountain View, California-based company said it faced mounting expenses as a result of aggressive hiring and reignited capital expenditures that had been paused after the outbreak of the pandemic more than two years ago.
"We are lapping the recovery we had in 2021," Alphabet Chief Financial Officer Ruth Porat told investors on the company's earnings call Tuesday, referring to the rebound after a dip in sales early in the pandemic. Yet, even with the anticipated slowdown and temporary global disruptions, the company "will invest aggressively through this year and remain focused on investing in long-term value creation."
For Alphabet, that means kicking off plans to spend $9.5 billion through the remainder of the year on expanding its national office portfolio and roster of data centers. CEO Sundar Pichai said the anticipated investments would result in the creation of about 12,000 jobs in New York, Atlanta and other cities and would be critical in setting the stage for the company's long-term expansion.
The additional offices will "help support our own flexible work plans," Pichai said on the investor call, adding that they will enable the tech giant's plans to expand into areas such as cloud computing, artificial intelligence and other business segments.
The company has gradually brought workers back to its offices around the world as part of a new hybrid model that allows most employees to work remotely two days and venture into physical offices for the remaining three days of the week.
Through the first quarter, Alphabet closed several blockbuster office acquisitions in New York, London and Warsaw. The company now owns more than $104.2 billion in real estate around the world, up from about $98 billion at year-end 2021.
Revenue, Earnings Hit
The expansion comes as Alphabet reported that first-quarter sales rose 23% compared to the year-earlier period, the lowest rate for the search engine giant since late 2020. Through 2021, sales had been growing at quarterly rate of more than 40%.
Facing headwinds from disrupted digital advertising spending and rising inflation, as well as a moderate hit form the war in Ukraine — the company said about 1% of its revenue in 2021 came from sales in Russia, which were suspended earlier this year — Alphabet is adapting to slower growth rates.
The company reported $68 billion in sales through the first quarter of the year. Rising expenses dragged net income down by more than 8% to $16.4 billion.
Similar to most global tech companies, Alphabet has raked in record profits during the pandemic, feeding significant spikes in hiring as well as major leases and acquisitions made in anticipation of its gradual return of its workforce to the office. The company said it hired more than 7,400 people over the first three months of the year and now has a global workforce of nearly 164,000 employees. It employed just shy of 140,000 people at year-end 2021.
The hiring has accelerated the company's plan to invest aggressively in expanding its commercial real estate footprint across the U.S.
Pichai said earlier this month the company's investments would be focused on a mix of office openings and data centers as well as upgrades to existing office space. Some of the corporate hubs it has in the works include an outpost in Atlanta; a spot in downtown Austin, Texas, that is under construction; a new campus in Boulder, Colorado; expanded campuses in the Boston, Pittsburgh and Seattle areas; as well as a new office in downtown Portland, Oregon.
The company is also building new data centers in Storey County and Henderson, Nevada; Council Bluffs, Iowa; Nebraska; Midlothian, Texas; Tennessee; Virginia; and Oklahoma.
"It might seem counterintuitive to step up our investment in physical offices even as we embrace more flexibility in how we work," Pichai wrote in an early April company blog post about its real estate expansion plans. "Yet we believe it's more important than ever to invest in our campuses and that doing so will make for better products, a greater quality of life for our employees and stronger communities."