Zynga COO Said to Lose Product Oversight as Growth Slows

Zynga Inc. (ZNGA) Chief Operating Officer John Schappert was stripped of his role overseeing game development in a reorganization aimed at reviving growth and making more money from mobile services, people with knowledge of the matter said.

David Ko, who runs Zynga’s mobile operations, and Steve Chiang, executive vice president of games -- both of whom reported to Schappert -- now report directly to Chief Executive Officer Mark Pincus, the social-gaming company said today, confirming information from people who yesterday asked not to be identified because the changes hadn’t been made public.

“We reorganized our teams in July to integrate Web and mobile groups,” Zynga said today in an e-mailed statement. .

Pincus embarked on the overhaul in early July, at the close of a quarter marked by slowing sales growth and a drop in demand for virtual goods. Schappert, lured away last year from Electronic Arts Inc. (EA) with a pay package worth $42.8 million, has lost support within the company and taken some of the blame for its underperformance, the people said.

“The place is in utter meltdown mode,” Richard Greenfield, an analyst at BTIG LLC in New York, said yesterday in an interview. “The real question I think everyone should be asking is why it took reporting a collapse in earnings to make a management change.”

Shares of Zynga fell 4.8 percent to $2.81 at the close in New York, the lowest price since the company held its initial public offering in December. The stock has dropped 72 percent since the market debut. The decline accelerated last week after Zynga reported sales and profit that missed analysts’ predictions.

Mobile Priority

The reorganization was aimed in part at making mobile- software development more of a priority across Zynga, the people said. Ko will work with Chiang to involve more of the company’s best designers on apps for smartphones and tablets, they said.

Zynga makes money by selling virtual goods within its games -- say, a gun in “Mafia Wars,” or a tractor in “FarmVille.”

Renewed emphasis on mobile may help Zynga lessen its reliance on Facebook Inc. (FB), which accounts for about 80 percent of bookings, or the total value of virtual goods sold in its games. Zynga contributes 14 percent of Facebook’s revenue, the Menlo Park, California-based social network said yesterday in a filing.

Zynga may have had a duty to disclose the management changes to shareholders in its second-quarter filings, BTIG’s Greenfield said in a blog post today.

EA Veteran

“We are surprised that Zynga’s public filings do not clearly explain what happened and why, given the importance of the reasons behind the reorg, as well as the seniority of executives involved,” Greenfield wrote.

Schappert joined Zynga in April 2011 after spending much of his career at its chief rival. He began at Electronic Arts in 1998 when the game giant acquired his development company, Tiburon Studios. He left in 2007 to head Microsoft Corp.’s Xbox Live unit before returning to EA in 2009 as president and chief operating officer.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Zynga earnings

David Paul Morris/Bloomberg

Mark Pincus, chairman and chief executive officer of Zynga Inc., an event at Zynga Inc. headquarters in San Francisco.

Mark Pincus, chairman and chief executive officer of Zynga Inc., an event at Zynga Inc. headquarters in San Francisco. Photographer: David Paul Morris/Bloomberg

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July 31 (Bloomberg) -- Bloomberg News reporter Doug MacMillan reports on the demotion of Zynga's COO. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)