As reported earlier, we hear that AOL is considering cutting 20%-25% of its 11,000 employees worldwide, or up to 2,700 people (AOL declined comment). To gauge the hypothetical financial impact of such cuts, we ran some numbers. We estimate that a 20% cut (2,200 employees) would save about $115 million a quarter, or $450-$500 million a year.
We ran three scenarios, using a range of assumptions for headcount costs and headcount reductions. We also ran a “sanity check” (cost-per-whacked employee), which can be viewed here. Using Q2 financial performance, and assuming no revenue impact (with a mass firing of this size, there would likely be some), we estimate that AOL’s pro forma performance after the hypothetical mass firings might look like the numbers below. We caution that these pro forma estimates use Q2 revenue and therefore don’t factor in the impact of additional revenue declines. Please see this update for forward-looking estimates.
Q2 2007 ACTUAL Q2-07A
Cash Costs $768
Adj. EBITDA $485
Assumptions: Conserv. Base Aggress.
Employee-Related % of Costs 65% 75% 85%
Headcount Reduction 15% 20% 25%
Employees 11,000 11,000 11,000
Employees Whacked 1,650 2,200 2,750
Q2 2007 PRO FORMA Conserv. Base Aggress.
Revenue $1,253 $1,253 $1,253
Cash Costs $693 $653 $605
Adj. EBITDA $560 $600 $648
Margin 45% 48% 52%