GamesBeat

Zynga’s stock dives 12 percent after layoffs

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After laying off 18 percent of its employees — 520 people — social game publisher Zynga saw its stock price fall 12 percent to $2.99 a share.

Zynga’s stock was halted after the news broke around 11:35 am Pacific time. But it fell further when trading resumed. In after-hours trading, the stock rose slightly to $3 a share.

While Zynga didn’t give out details, AllThingsD and others on social media said the company appears to be closing its New York, Dallas and Los Angeles offices.

The move is affecting all parts of the social gaming company and it will accelerate its shift toward mobile games. The goal is to cut $80 million in staff costs. The move shows just how far Zynga, the maker of social games such as FarmVille and Zynga Poker, has fallen from its initial public offering in late 2011, when the company was valued at $9 billion. Its value is now $2.4 billion.

“It is brutal to watch, but not unexpected,” said Ben Schachter, an analyst at Macquarie Equities Research. “On Facebook, they had first-mover advantage and could leverage the network. On mobile they certainly weren’t the first mover, and, thus far, no one has shown that they can really successfully leverage a network in the same way that Zynga was able to do on Facebook. Additionally, many companies are struggling to find the right monetization model on mobile vs. desktop.”

Zynga has been trimming back staff in recent months as it tries to move toward consistent profitability and focus on establishing long-term franchises. But today’s rumored cuts are a much more drastic reaction to the company’s problems.

A spokesperson for Zynga said the most recent employee count at the end of the first quarter was 2,902 employees. So the 520 employees is 18 percent of that number. The spokesperson did not confirm which regional offices were closed. The spokesperson also could not say which games Zynga would discontinue as a result of the layoffs. The teams in New York included the OMGPOP team that created Draw Something and Draw Something 2. In Dallas, Zynga’s team made the CastleVille game, while the Los Angeles team made Empires & Allies.

Chief executive Mark Pincus recently cut his pay to $1. He also raised the pay of a number of other executives in order to stave off a brain drain at the company. We have asked if Zynga will now proceed to cut executive pay as well.

Zynga chief operating officer David Ko told us in past interviews that he had put up “guard rails” to try to keep the company’s costs under control. The company has begun to shut down or has shut down 18 games in recent months. And it has shifted more than half of its staff to focus on mobile games.

In a press release, Zynga said the cuts would save $70 million to $80 million a year in pretax spending. The layoffs will be complete by August, and Zynga will take a pretax restructuring charge of $24 million to $26 million in the second quarter and $2 million to $5 million in the third quarter. Zynga expects $15 million in a reversal of stock-based expenses in the second quarter.

Zynga now projects a net loss of $39 million to $28.5 million in the second quarter. Books are expected to be in the lower half of previous guidance. While FarmVille continues to do well as a franchise, other games are underperforming.


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