FYI: Mike Segar/Reuters
The layoffs Airbnb announced last week will likely only have a minor effect on its coronavirus-throttled bottom line this year, according to a Business Insider analysis.
The company is likely to save less than $254 million this year from the job cuts, which affected some 1,900 workers; by contrast, the company has announced that it expects its revenue to be down by more that $2.4 billion this year.
The savings this year will be limited by the fact that a third of the year has already passed, and Airbnb plans to give workers relatively generous severance packages.
The company will save more next year as those severance packages end.
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Airbnb's big layoff that took effect this week isn't going to save the company. And, at least this year, it's unlikely to do much to slow the company's cash burn.
The San Francisco startup announced last week it was going to cut 1,900 jobs, or about 25% of its workforce. Those cuts took effect Monday for affected workers in the US and Canada. While the number of jobs is significant and the hardships faced by those workers — laid off in the middle of both a pandemic and an economic downturn — could be as well, the savings to Airbnb from the cuts aren't likely to amount to a whole lot, relatively speaking.
At best, the company could save around $254 million from the layoffs this year, Business Insider estimates. To put that number in context, Airbnb is facing a more than $2.4 billion revenue shortfall in 2020, company CEO Brian Chesky said in the layoff announcement last week.
The company has not said how much it expects to save as a result of the layoffs, and an Airbnb representative declined to comment on Business Insider's estimates.
The amount of the cost savings is important because Airbnb was already losing money before the Covid-19 crisis and is almost certainly losing much more after it. Although the company shored up its cash stash last month with $2 billion in debt financing, that entire amount and more would be consumed by its revenue shortfall if it didn't cut costs to match.
Although these job cuts will help close the gap, Airbnb will likely have to find other sources of savings, particularly if the economic downturn and the near-freeze on travel persists longer than expected.
Airbnb's savings depend on average salary and benefit costs
There's inherently a lot of uncertainty in trying to calculate the company's cost savings. Airbnb is a private company and has to date released little information publicly about its finances. Although the company has disclosed the names, titles, and office locations of many of those affected, it didn't publish their salaries.
To figure out how much Airbnb might save from the job cuts, Business Insider put together a series of rough calculations of the average amount each employee costs the company. Those costs include not just salaries, but benefits and payroll taxes. The general rule of thumb is that benefits and payroll taxes together add up to about 25% to 40% of the salary for each worker.
For a starting point for salary costs, Business Insider used the average salary for a software engineer in the Bay Area. That seemed a good place to start because of the more than 1,000 laid-off workers whose names have been listed by Airbnb, around half were based in San Francisco. And more than 10% of those listed were in some kind of technical role, whether as a software engineer or as a member of the company's information technology team.
According to Hired, a job board for tech workers, the average salary for a software is $135,000. Given that salaries in the Bay Area are high compared with other areas around the world and that software engineers tend to be paid more than other workers with similar experience, that figure is probably greater than the average salary of those cut from Airbnb.
For healthcare costs — almost certainly the most costly benefit in terms of cash outflow that Airbnb is continuing for workers — we started with some figures from the Kaiser Family Foundation and the federal Agency for Healthcare Research and Quality. For US workers, Airbnb announced it would pay their COBRA coverage costs, which are basically a combination of the employer premium it was previously paying and the premium those employees paid when they were employed.
Health insurance premiums vary based on how many people are covered — coverage of a single employee by him or herself costs significantly less than coverage of the employee and his or her entire family. Factoring in the average proportion of employees that tend to choose each level of coverage and those that opt out of coverage as well as the average cost of each level of coverage, we came up with a blended average of healthcare premium costs per US employee of around $12,400.
Per-person healthcare costs are considerably higher in the US than in other countries, but that figure is likely a good one to start with, because the vast majority of affected workers Airbnb has listed so far are based in this country.
Generous severance packages will limit Airbnb's savings
Using those figures, Business Insider made a range of estimates for the savings Airbnb is likely to see this year and in coming years, starting with an average per worker salary of $100,000 and average benefit and tax costs of $25,000 — 25% — to an average salary of $150,000 with average benefit and tax costs of another $150,000, or 100%. For all the estimates we used a healthcare figure of about $12,400.
Based on those figures, we calculated that the job cuts would save Airbnb between $74 million and $254 million this year.
A big part of the reason the company is unlikely to save a lot of money from the cuts this year is that it is giving affected employees relatively generous severance packages. The company plans to pay laid off workers at least 14 weeks of pay this year, plus one extra week's worth of pay for each year they've worked at Airbnb. It also plans to continue paying US workers' health insurance costs for a full year and those of workers outside the US until the end of this year.
Additionally, it's making the cuts more than a third of the way through 2020. So, whatever savings it will get from not paying salaries later on won't apply for much of this year.
The company will see more substantial savings next year. Business Insider estimates those will range from about $231 million to $563 million, depending on average salary and benefit costs. In 2022 and following years, the savings will be slightly higher, after it stops paying for healthcare coverage for US workers. It will likely save somewhere between $237.5 million and $570 million.
Those amounts are nothing to sniff at. But they almost certainly won't turn the company around. Last year, when Airbnb was still booming and COVID-19 hadn't yet curtailed its business, the travel giant lost $674 million. So, even then these layoffs wouldn't have put it in the black.
This year, it's likely facing an even bigger deficit, thanks to the throttling of the travel industry by the coronavirus crisis.
To be sure, Airbnb has already taken other steps to close that gap. The company is cutting its marketing budget, a move that will reportedly save it $800 million this year. And prior to laying off employees, Airbnb cancelled the contracts of an estimated 500 contractors.
And the company could see additional savings from the layoff. It likely will spend less on equipment, furnishings, and software for employees. And with fewer workers, it might be able to scale back on some of its real estate.
Still, it wouldn't be much of a surprise if this isn't the last of Airbnb's cuts.
Got a tip about Airbnb? Contact Troy Wolverton via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.
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