$AOL Cost Structure Risk

Image representing AOL as depicted in CrunchBase

Image via CrunchBase

AOL (NYSE:AOL) announced a 20% workforce reduction. The unlucky employees to be decimated are not in the Huffington Post (read Arianna) camp. Was this pre-negotiated but not announced at the time of acquisition? 20% equals 950 people. 200 Americans will be applying for jobless benefits. 750 Indians (South Asia)  are also out of work. 300 Indians have been offered jobs with third-party contractors who have not been named.

So what does this mean for AOL’s cost structure? Indian labour is supposed to be low cost and price efficient. On a net basis 450 positions have been eliminated. We can only assume that the remaining 300 positions are cheaper through the unknown third-party contractors.

Has technology advanced so far that we can eliminate hundreds of AOL positions? If so why was this not done sooner? 

Will the Huffington Post infrastructure be used more efficiently? Thereby allowing substantial workforce reduction? I thought Huffington was purchased for it’s content and marketing appeal. I do not recall any discussion about technology synergies.

Where is the Huffington infrastructure? Was it off shore already?

How will left leaning Democrats explain the loss of American Jobs in technology? Are there more to come?

AOL/HuffPost needs to explain its new cost structure. If you can eliminate so many low wage jobs what has changed in the AOL cost model. Investors need to understand these issues. There are enough questions about AOL as it is.

Disclosure: “George Gutowski” writes from a “caveat emptor perspective”. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.

AOL Takes Arianna Hostage

Arianna Huffington

Image by jdlasica via Flickr

AOL (NYSE:AOL) used its precious cash resources to purchase Huffington Post for $315 million. Nice pay-day for Arianna and her investors. Huffington Post was hot hot hot. AOL did the right thing in buying. But they needed to take Arianna Huffington as a hostage to back up the big bet. They are looking to her to transform AOL into something positive and vibrant. They put her in charge as editor-in-chief.

Arianna will become the next head of AOL or AOL will fire her within the next two years and lament their lack of good luck. The press releases do not talk about the purchase being accretive. Right now it’s all about the hype. AOL stock has moved downwards.

To make $315 million work at say a 15% ROI AOL will need $47 million per annum in return. Arianna your hostage negotiations probably failed to point this out to you.

Disclosure: “George Gutowski” writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.