Now that AOL is moving its corporate headquarters to New York, it has the perfect excuse for axing thousands of employees. We still can’t confirm that AOL is planning to radically resize itself, but it now has the perfect opportunity.
What we can do is try to figure out how many employees AOL will need to fire if the subscription business continues to collapse and it wishes to maintain its current per-employee productivity. Short answer? A lot. Details after jump:
In our third instalment on AOL’s potential mass firings, we estimated that AOL would need to fire approximately 2,750 employees to maintain its current EBITDA in Q4 and beyond. In this latest instalment , we simply assess AOL’s per-employee productivity compared to that of Yahoo and Google (There is no need to consider Microsoft, because Microsoft’s online division has no productivity-per-employee–it’s bleeding cash). Please see this sheet for details.
The good news: Based on its Q2 EBITDA of $485 million and 11,000 employees, AOL doesn’t need to fire anyone! Its EBITDA per employee ($44,000) is already higher than Yahoo!’s ($38,000). Sure, it’s a far cry from Google’s ($80,000), but we can’t all be Google.
The bad news: If the recent rate of decline in AOL’s subscription business is any guide to the future (which we think it is), AOL’s EBITDA is about to start plummeting. So we re-ran the numbers, using two scenarios: A “mild” version and a “harsh” version.
In the “Mild” scenario, we assume that:
- 33% of AOL’s Q2 EBITDA came from the subscription business, and
- Subscription EBITDA will get cut in half.
In the “Harsh” scenario, we assume that:
- 50% of AOL’s EBITDA in Q2 came from the subscription business.
- The subscription business’s EBITDA will soon go to zero.
So what would happen under these scenarios? AOL would need to start firing people. How many? Depends how productive it wanted to be.
Scenario 1: Mild
How many employees would AOL have to fire to get back to Yahoo levels of productivity? 1,000.
How many employees would AOL have to fire to get back to its current level of productivity? 2,000.
Scenario 2: Harsh
How many employees would AOL have to fire to get back to Yahoo levels of productivity? 4,500.
How many employees would AOL have to fire to get back to its current level of productivity? 5,500.