Zynga cuts 150 of its staff, closes its Boston office, and drops some games

Zynga cuts 150 of its staff, closes its Boston office, and drops some games
Game developer Zynga has run into problems since buying Draw Something developer OMGPOP for $180 million. Nearly two weeks ago, we told you about the situation and how the company's stock had tumbled from $14 to $2.30. On Tuesday, for the first time in Zynga's modest history, the beleaguered game maker had to eliminate staff. 150 Zynga employees were laid-off on Tuesday. 13 games will be "sunset" and there will be no further investment in The Ville, a game that was launched last June.

Zynga was created in 2007 and started by offering games over Facebook's vast social network. The number of employees surged over time from 100 to 3,000. The company makes money by selling premium and ad-free versions of its games, and sells in-app tools and upgrades to improve the player's experience. But Facebook is no longer relying on Zynga and vice-versa. 7% of the social networking site's revenues were from Zynga games according to the recently released third quarter earnings, down from 11% the prior year. Facebook CEO Mark Zuckerberg noted during Tuesday's conference call for Facebook's Q3 results that the game ecosystem for Facebook has actually been growing while payments to Zynga dropped 20% in the quarter.

Besides The Ville, other Zynga titles have started losing players in big numbers. The company still has its flagship Words with Friends which is a Scrabble-esque game made infamous by Alec Baldwin's refusal to turn off his Apple iPhone on an airplane while playing the game. Besides The Ville, developers working on Bingo are also part of the layoff which has affected locations in Austin and Boston with the latter office shuttered completely. Speculation grew that an "all-hands meeting" would be held late Tuesday. Mobile teams and those toiling in San Francisco were said to have survived the changes.

While many of those working for Zynga can't be happy with the layoffs and closings, Wall Street liked the moves. In after-hours trading, Zynga shares rose 4% to $2.29. Being a public company, Zynga has to report quarterly earnings and it appears that CEO Mark Pincus wants to get the earnings growing again which could lead to a higher stock price. The big question is why he is seemingly pushing the panic button on a company that still has $1.6 billion in cash in its coffers, according to a former employee. Could it be that Pincus owns a large chunk of stock that is a huge percentage of his investment portfolio? SEC filings show that Pincus made an acquisition of Zynga stock in a non-open market transaction on April 3rd of this year. At the time, he owned no shares of Zynga. On April 2nd the stock closed at 12.88. Assuming Pincus paid even a decent discount for the stock, you have to assume he is taking a big hit on the purchase.

source: Zynga, WSJ, TechCrunch

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