Zynga Announces Layoffs, Predicted Losses

We last visited Zynga in late April, when they had just launched Draw Something 2, an Instagram copycat, which unsurprisingly hasn’t reached viral status. The company was trimming the fat by closing down a few popular Facebook games, and was mimicking the downward trajectory of EA.

zyngapicNow the online gaming company is reducing costs by laying off 18% of their workforce, or 520 jobs. In an internal letter that was published on the company blog, CEO Mark Pincus assured employees and shareholders that those who are leaving will be well taken care of and those who are staying can keep their faith in the company’s future.

Mobile and touch screens are revolutionizing gaming… 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.

The blog article came on the heels of a press release that claimed the layoffs will save Zynga between $70-80 million. The release also included Zynga’s outlook for Q2: a net loss $39-28 million. According to USA Today, news of the layoffs caused Zynga’s stock to plunge by 12% to about $3 a share. In all fairness, their stock’s high in the past 52 weeks was slightly over $6, so the plunge was only about 40 cents.

Zynga2Pincus tried to explain that Zynga knows it needs to change. Their current development and implementation isn’t able to keep up with evolving technology and they need to completely rewire their structure to stay relevant. (Where have we seen this before? Try Myspace and Flickr.)

Zynga and Facebook used to go together like peas and carrots until the rise of smartphones and the evolution of social gaming. Inviting friends to help grow crops on Farmville had its moment of popularity on Facebook, but now holds as much appeal as getting poked. Game use on Facebook has been on the decline as people who enjoy doing things “with friends” (i.e. Words, Family Feud, Scrabble) download the app directly instead of going through a third party.

Facebook and Zynga announced the end of their special relationship in November 2012 and Zynga was demoted from the social network’s main squeeze to just another gaming company in the rotation. It was a peaceful break-up as Zynga was pursuing the mobile market.

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.

While it’s the job of the CEO to keep the faith of employees and shareholders, all of the assuring words from Pincus can’t compare to the harsh reality of the numbers. One fifth of the employee workforce is gone, projected losses are in the tens of millions, and the stock price won’t go above $5. There’s no doubt the mobile market has revolutionized marketing, business and our day-to-day lives, and Zynga will have to keep adapting to it if it ever wants to become profitable, competitive and a sound investment.

About the author

Amanda Dodge