Zynga Inc. (ZNGA), the biggest maker of online social games, said it will cut 520 jobs, or 18 percent of its staff, and close some offices amid disappointing results from its titles outside the “FarmVille” series.
The reductions will save about $70 million to $80 million in pretax expenses annually, the San Francisco-based company said in a statement yesterday. The cuts will be completed by August and will result in restructuring charges of $24 million to $26 million in the second quarter and $2 million to $5 million in the third quarter.
Chief Executive Officer Mark Pincus is trimming costs as game players shift from titles on Facebook Inc. (FB), Zynga’s core business, to apps played on mobile devices. While the cuts may help buoy profits, the move puts pressure on Pincus to find new sources of growth, said Michael Pachter, an analyst at Wedbush Securities Inc.
“You can’t save your way to prosperity,” Pachter said in an interview. “They have to keep innovating.”
Zynga dropped 12 percent to $2.99 at yesterday’s close in New York, the first time in almost four months the stock has fallen below $3. The shares have gained 27 percent this year, compared with a 15 percent increase for the Standard & Poor’s 500 Index.
Along with the staff reductions, Zynga is closing its offices in New York, Los Angeles and Dallas, said a person familiar with the matter, who asked not to be identified because not all affected workers have been notified.
Pincus called for a restructuring last year that resulted in a 5 percent reduction in headcount, closing offices in Boston and Austin, Texas, as well as ending more than a dozen games.
A more streamlined organization will be better positioned to compete in mobile gaming, Pincus said yesterday in an e-mail to employees that was posted on Zynga’s blog.
“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.”
Zynga also said it will record about a $15 million reversal of stock-based expenses because of the job reduction, and forecast a net loss in the current period of $28.5 million to $39 million, including costs of the restructuring.
The company’s tally of monthly users fell 13 percent to 253 million in the first quarter, Zynga said in April. The company forecast revenue of $225 million to $235 million for the current period.
Zynga’s most popular game is “FarmVille 2,” followed by “Texas HoldEm Poker,” according to AppData. It’s facing increased competition from rivals including King.com, owner of the most popular game currently on Facebook, “Candy Crush Saga.”
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