Just weeks after returning to the helm of the videogame company he founded, Zynga Inc. CEO Mark Pincus is slashing nearly a fifth of the workforce.
The job cuts, announced Wednesday, come as Zynga grinds away at a turnaround. The company reported a 9.1% increase in its first-quarter revenue and a narrower loss, both better than what Wall Street expected. It also forecast a second quarter slightly stronger than analysts’ projections.
Shares jumped hours before the close in New York, finishing up 4.4% to $2.61. In after-hours trading, Zynga’s shares were up 6.1%.
Zynga is cutting 364 employees, or about 18% of its workforce. It is one of the first strategic moves from Mr. Pincus since he returned in early April to retake the reins from Don Mattrick, a former Electronic Arts Inc. and Microsoft Corp. executive who held the top job nearly two years.
The cuts, expected to be completed before year-end, will result in charges of between $18 million and $22 million in the second quarter, Zynga said. The company expects annualized savings of about $45 million excluding those charges, with another $55 million down the road through other belt-tightening, such as letting Amazon.com Inc. manage its servers.
It’s not the first time Zynga has cut into its ranks. In June 2013, it let go of nearly a fifth of its payroll. This latest round will leave Zynga with about 1,600 employees, less than half its peak of 3,400 in 2012, when Zynga acquired OMGPOP Inc. for $180 million.
In an interview, Mr. Pincus said Zynga was trying to do too much. He plans to focus on a few popular areas like casino games. One casualty is sports, a category Zynga entered less than a year ago with a new studio in Orlando, Fla. That studio is closing, stopping development of a Tiger Woods golf game and putting a countdown clock on an NFL game.
Mr. Pincus said.
“We just have been spread too thin. Zynga hasn't done a great job of funding our best opportunities.”
One hole in Zynga’s mobile portfolio is action-strategy games. Earlier this week, Zynga released “Empires & Allies” to compete with the likes of Supercell Oy’s “Clash of Clans,” a top-grossing game on app stores. It took two years to develop, compared with less than three months to make one of Zynga’s first-ever hits, “Mafia Wars” for PCs, Mr. Pincus said.
Sean McGowan, an analyst at Needham & Co., called the ax-wielding a positive step. He said.
“Even after all the rounds of cost reductions that we’ve seen, this was still a company with a cost structure that was higher than you’d expect.”
But he questioned the strategy of making fewer games.
“There isn’t a lot of evidence yet that fewer games will lead to bigger games.”
Zynga expects to launch six to eight new mobile games in 2015, including a second strategy game called “Dawn of Titans.”
Getting strategy games out the door is just one step toward an elusive finish line—profitability. That slow march continued in the first quarter, when Zynga reported a loss of $46.5 million, or five cents a share, compared with a year-earlier loss of $61.2 million, or seven cents a share.
Excluding certain items, the loss was a penny a share, on par with a year earlier but better than the two-cent loss analysts expected, according to Thomson Reuters.
Revenue climbed to $183.3 million, ahead of the $147.7 million expected by analysts, according to Thomson Reuters. Zynga said mobile accounted for 63% of its $167.4 million in bookings—money spent on games—in the quarter.
For the second quarter, Zynga expects revenue of between $175 million and $190 million, better than the $156 million Wall Street expects, according to Thomson Reuters. The company expects another net loss, of between $54 million and $50 million, in line with Wall Street’s forecasts. In the second quarter 2014, Zynga had a loss of $62.5 million.
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COMMENTARY: When Zynga announced that former CEO Mark Pincus, who was on a nearly year and a half hiatus, was returning to replace departing CEO Don Mattrick, I was flabbergasted and very disappointed. It was during Pincus' watch that Zynga tried to make the transition from a desktop social game company that used Facebook as its user platform to attract gamers to an indepenent mobile game company. There was also a lot of controversy surrounding Mark Pincus' treatment of employees, most notably taking back stock options from staffers he considered poor performers.
Under Pincus leadership, Zynga's active users, revenue growth and share prices dropped precipitously. Here's what I am talking about:
In an article dated June 3, 2013, Business Insider's Jay Yarow and Nicholas Carlson discuss in great detal what went wrong with Zynga under CEO Mark Pincus. Richard Greenberg, an analyst covering technology stocks, like many analysts on Wall Street were "stunned" by Zynga's board of directors announcement that Mark Pincus was returning to replace departing CEO Don Mattrick.
Let's hope that the "new" and "improved" Mark Pincus can turn things around at Zynga. Zynga's financials for the year ending December 31, 2014 and Q1 2015 show declines and red ink across all important company financial performance metrics.
Financial Data FY Ending December 31, 2014
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Financial Data Quarter Ending March 31, 2015
Under departed CEO Don Mattrick, Zynga's both daily and monthly active users have suffered significant declines. This is a condition that must be reversed in order to avoid even larger operating losses. It will require new games with the potential to become hits and revenue generators.
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As you can readily see, turning around Zynga will present a huge challenge for Mark Pincus. In Zynga's Q1 2015 Earnings Report, Mark will employ a "Narrowed Focus" strategy that will focus on five game categories:
Social games like "Farmville", "Farmville 2" and "Mafia Wars" which were Zynga's "bread-and-butter" revenue sources have matured and lost favor with gamers and have shown dramatic declines in active users and revenue contributions. Pincus must now hope that its two newest "Action" games "Empires & Allies" and "Dawn of Titans," become big hits.
Courtesy of an article dated May 6, 2015 appearing in The Wall Street Journal, an article dated April 8, 2015 appearing in the New York Times, an article dated May 28, 2014 appearing in ValueWalk, an article dated June 3, 2013 appearing in Business Insider, and data reported in Zynga's Q1 2015 Earnings Report