Zynga Lays Off 18% of Staff; Lowers Outlook Due To Underperforming Games

Zynga is laying off 18 percent of their workforce, or about 520 employees, in an effort to cut costs and shift their focus to mobile gaming and away from the Web.  Zynga also lowered its outlook for bookings saying they will be at the “lower-end” of their previous forecasted range due to games other than Farmville underperforming.

“The scale that served us so well in building and delivering the leading social gaming service on the Web is now making it hard to successfully lead across mobile and multiplatform, which is where social games are going to be played,” said Zynga Founder and CEO Mark Pincus in a statement to employees outlining the changes.

Zynga, which is best known for its popular Facebook game Farmville, has been pulling the plug on numerous games in recent months as it attempts to shift its focus to the growing mobile market to boost revenue and slow player defections.  Zynga has faced a decline of its Web business, especially on the Facebook platform, which was initially its key money-making partner.  At the same time, the growth of its mobile business has been slower than needed to appease Wall Street.

Shares of Zynga have fallen 60 percent over the past year and now sit near $3.00, well below their IPO price of $10 per share.

“Mobile and touch screens are revolutionizing gaming,” Pincus said.  “Our opportunity is to make mobile gaming truly social by offering people new, fun ways to meet, play and connect.  By reducing our cost structure today we will offer our teams the runway they need to take risks and develop these breakthrough new social experiences.”

Zynga has already started focusing on another area of gaming coined “mid-core combative,” which has a higher revenue-per-user.  The company released War of the Fallen in mid-April, but still remains focused on its more casual titles as well, launching Draw Something 2 in April.  Zynga also released Running With Friends last month, which hit No. 1 on Apple’s iOS on May 15.

“Running With Friends is a great example of the quality player experience we can deliver, already receiving an average 4.5 app star rating from 22,700 players in less than one month after launching,” Pincus said.  “Our FarmVille franchise teams continue to innovate and deliver ground breaking new social experiences like County Fair which, despite only being available on the web, is engaging 39 million monthly players.”

The cuts today will save the company $70 to $80 million in pre-tax annualized cash expense savings and include the closing of its offices in New York, Los Angeles, Austin and Dallas, as well as the slashing of other major infrastructure costs, adding to the total expense reduction that is likely to be much larger.

As a result of the layoffs, Zynga said it would record pre-tax restructuring charges of approximately $24 million to $26 million in the second quarter, and $2 million to $5 million in the third quarter.  Zynga updated its second quarter loss estimate to between between $39 million to $29.5 million.

Zynga also said bookings are projected to be in the lower half of the outlook ranges provided in their April 24, 2013 first quarter earnings release.  Zynga said that while their Farmville franchise is performing well, their other games are underperforming.

Zynga reaffirmed its second quarter 2013 outlook for Revenue, EPS, Adjusted EBITA, and Non-GAAP EPS and its full-year 2013 outlook for Adjusted EBITA margin.