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.
Words with Friends is Zynga's flagship game
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.
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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.
Team,
Earlier today we initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future. We waited to share this news with all of you until we had first spoken with the groups impacted.
As part of these changes, we’ve had to make some tough decisions around products, teams and people. I want to fill you in on what’s happened and address any concerns you may have.
Here are the most important details.
We are sunsetting 13 older games and we’re also significantly reducing our investment in The Ville.
We are closing the Zynga Boston studio and proposing closures of the Zynga Japan and UK studios. Additionally, we are reducing staffing levels in our Austin studio. All of these represent terrific entrepreneurial teams, which make this decision so difficult.
In addition to these studios, we are also making a small number of partner team reductions.
In all, we will unfortunately be parting ways with approximately 5% of our full time workforce. We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us. We appreciate their amazing contributions and will miss them.
This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors.
These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile.
Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader. Our success has come from our dedication to a simple and powerful proposition – that play is not just something people do to pass time, it’s a core need for every person and culture.
We will all be discussing these difficult changes more with our teams and as a company. Tomorrow, Dave and I will be hosting a post-earnings webcast (details to follow) and next week we will be discussing our broader vision and strategy during our quarterly all-hands meeting. I’m confident this puts us on the right path to deliver on the promise of social gaming and make Zynga into an internet treasure.
If you have any immediate questions, I hope you will talk directly with your manager, Colleen, or me.
I look forward to talking with you tomorrow.
Mark"-Letter from Zynga CEO Mark Pinucs to the company's staff
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