Google to cut marketing budgets by as much as half, directors warned of hiring freezes

Key Points
  • The company is planning to slash its marketing budgets by as much as half, according to internal documents viewed by CNBC.
  • Directors were told that hiring freezes for both full-time and contract workers are taking place.
  • The cuts represent a more drastic move than Google CEO Sundar Pichai originally described a week ago.
Google CEO Sundar Pichai speaks on stage during the annual Google I/O developers conference in Mountain View, California, May 8, 2018.
Stephen Lam | Reuters

Google is slashing its marketing budgets by as much as half for the second half of the year, according to internal materials viewed by CNBC.

One email about the cuts went out to marketing employees this week, noting the budget cuts and a new hiring freeze for full-time and contract employees.

"There are budget cuts and hiring freezes happening across marketing and across Google," said one message from a global director sent to employees Wednesday. "We, along with the rest of marketing, have been asked to cut our budget by about half for H2."

A company spokesperon confirmed that some areas' budgets are being cut by as much as half, but added that others may not be since it is still in the process of "recalibrating."

"As we outlined last week, we are re-evaluating the pace of our investment plans for the remainder of 2020 and will focus on a select number of important marketing efforts," a company spokesperson said in an emailed statement to CNBC Thursday. "We continue to have a robust marketing budget, particularly in digital, in many business areas."

Google shares dropped nearly 2% after hours following the news.

The drastic moves come a week after Alphabet CEO Sundar Pichai said Google would be pulling back on some of its investments for the rest of the year amid the Covid-19 crisis, starting with hiring. However, Pichai, at the time, only said it would recalibrate "non-business essential marketing" and "significantly slow down" hiring. There were not mentions of such drastic budget cuts or hiring freezes.

"Beyond hiring, we continue to invest, but will be recalibrating the focus and pace of our investments in areas like data centers and machines, and non business essential marketing and travel," Pichai said in the note to employees last week.

The news also comes as the company faces economic headwinds caused by the Covid-19 pandemic, which has effected the global economy. CNBC last week also found the company started pulling back on skills training resources for many of its workers. It also comes days before the company is scheduled to announce its second quarter earnings next Tuesday.

The Google spokesperson said the company was not conducting a widespread hiring freeze but would not comment on why directors received such information.

"We'll be slowing down the pace of hiring, while maintaining momentum in a small number of strategic areas, and onboarding the many people who've been hired but haven't started yet," the spokesperson said in a statement.

Prior to the pandemic, Google expected increase marketing spending from the year prior. The company, which breaks outs marketing and sales expenses together, spent $18.46 billion on sales and marketing in 2019, according to its most recent annual 10-k.

That includes advertising and promotional expenditures related to products and services as well as compensation for employees in sales and marketing. Last year, it increased its headcount by at least 15%, the annual report shows. In addition, there was an increase in advertising and promotional expenses of $402 million.

"Just like the 2008 financial crisis, the entire global economy is hurting, and Google and Alphabet are not immune to the effects of this global pandemic," CEO Sundar Pichai stated in the memo sent to employees last week. "We exist in an ecosystem of partnerships and interconnected businesses, many of whom are feeling significant pain."

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