Zynga Inc. announced its second round of layoffs in less than a year Monday, with the latest round of reductions slicing 520 employees as the social-gaming pioneer attempts to control its poor financial picture.
Zynga said Monday that it would cut about 18 percent of its workforce and close some offices s in an effort it expects will save $70 million to $80 million annually.
AllThingsD — which, along with TechCrunch, reported the layoffs minutes before Zynga announced them — said the Los Angeles, New York and Dallas offices were scheduled to shutter. The layoffs are expected to be complete by August and cost the company as much as $46 million in severance and stock-related payments to employees, along with other restructuring fees.
In an email to employees that was also posted on the company’s corporate blog, co-founder and CEO Mark Pincus called Monday “a hard day for Zynga and an emotional one for every employee of our company.”
“None of us ever expected to face a day like today, especially when so much of our culture has been about growth. But I think we all know this is necessary to move forward,” Pincus wrote, adding that the company was making the move from a position of financial strength.
San Francisco-based Zynga has struggled financially and on Wall Street since its initial public offering in December of 2011, but it has large reserves thanks to the IPO, which brought in more than $1 billion at a valuation of $7 billion. Shares, which sold for $10 apiece in the IPO, have stayed lower than $6.50 for the past year and have not closed higher than $4 in 2013.
Zynga said in its announcement that it is continuing to struggle financially in the second quarter, despite laying off 5 percent of its workforce in October and closing its Boston office at that time. The company expects to lose about $2 million to $2.5 million more than originally announced in April, for a total net loss of $28.5 million to $39 million now expected for the three-month period, reflecting the immediate financial hit of the layoffs. Zynga said it still expects to hit its forecasts for second-quarter earnings — after posting a slight profit in the first quarter, the company said in April it expected to return to a loss in the current quarter.
“While our ‘FarmVille’ franchise continues to perform well, other games are underperforming,” the company admitted in Monday’s statement.
That continues a trend seen in April’s first-quarter earnings report, when Zynga’s revenues declined 18 percent as users flocked away from the company’s games. In the first quarter of 2013, Zynga’s daily active users dropped 21 percent to 52 million, an all-time low, and monthly active users dropped 13 percent to 253 million. In a bad sign for the company, Zynga did not announce a number of mobile users as it did the previous quarter, possibly signaling a slowdown in an important sector to social gaming.
“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,” Pincus wrote Monday.
Zynga has suffered since its sweetheart deal with Facebook came to an end, and sequels to previously popular games such as “Draw Something” seem to have failed to help the company.
Analysts believe the company’s sole hope now may be legalized online gambling and the profits it could bring — Zynga has begun offering real-money games in the United Kingdom and applied for a gambling license in Nevada late last year.
“We continue to think that any hope for real growth for this nebulous company really depends on what it can do in real-money gaming,” Sterne Agee analyst Arvind Bhatia told Reuters after the company’s most recent earnings release.
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