AOL expected to cut jobs to boost bottom line

One week after AOL Time Warner Inc. (AOLTW) filed a report with the U.S. Securities and Exchange Commission (SEC) indicating that it would broaden its cost-cutting measures in the second-half of the year, press reports have begun to swirl that the company's Internet division could conduct another round of layoffs as soon as this week.

Although a representative for the America Online Inc. (AOL) Internet division declined to comment on the reports Tuesday, the Washington Post newspaper has cited sources from within the company saying that the layoffs are "imminent."

The speculation was partially incited by a statement included in the company's second-quarter SEC filing saying that AOLTW plans to extend its restructuring plans during the third and fourth quarters.

AOLTW already laid off three percent of its staff, over 2,400 people, when AOL and Time Warner Inc. merged last January. Further restructuring is expected to entail more job cuts, as the company struggles to meet its financial goals for the year.

"The reports of possible AOL layoffs are widespread and such a move would make sense given the need for AOL Time Warner to prove the financial benefits of its merger," said Steve Vonder Haar, director of media and entertainment strategies for market researcher the Yankee Group Inc.

"The soft online ad environment gives AOL less wiggle room than it might have had otherwise, so they may have to look at a variety of alternatives to ensure they deliver the financial performance promised to Wall Street," Vonder Haar added.

AOL, like most media companies, is currently experiencing a decline in revenues due to a worldwide advertising slump. While the company reported a three-percent increase in revenue for the second quarter of this year to US$9.2 billion, AOL missed analysts' expectations of revenue of $9.74 billion.

Although the company underscored the difficulty of operating in the current market during the announcement of its second-quarter results, AOLTW Chief Financial Officer and Executive Vice President Michael Kelly gave a fairly confident revenue prediction for the year, predicting an annual revenue increase of 12 to 15 percent to $40 billion for 2001.

Given AOL's optimistic financial targets, and the fact that the ad market is unlikely to recover anytime soon, analysts indicate that job cuts would not come as a surprise.

"Every company has to manage to the bottom line, and layoffs are sometimes a way for managers to get the numbers in line quickly," Vonder Haar said.

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More about America OnlineAOLSECSecurities and Exchange CommissionTime WarnerWall StreetYankee Group

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