By Sarah E. Needleman
Zynga Inc. Chief Executive Mark Pincus--weeks after returning to
the helm of the company he founded--is slashing nearly a fifth of
the videogame company's workforce to focus on making fewer,
higher-quality games.
The job cuts, announced Wednesday, come as Zynga showed progress
in turning around its business. The company moved up its scheduled
first-quarter earnings release by a day, reporting a 9.1% gain in
revenue and a narrower loss than what Wall Street had expected. It
also forecast a second quarter that is slightly stronger than
analysts' projections.
Shares of Zynga rose 6.5% to $2.78 in brisk after-hours trading.
Before that, the stock had gained 4.4% during the regular session
Wednesday but still remained down 30% over the past 12 months.
Zynga said it is eliminating 364 employees, or about 18% of its
workforce. The cuts will come from several departments world-wide
and are expected to be completed before year's end.
It is one of the first strategic decisions from Mr. Pincus since
he returned in early April to take over from Don Mattrick, the
former Electronic Arts Inc. and Microsoft Corp. executive that held
the top job barely two years.
In an interview, Mr. Pincus said Zynga simply was trying to do
too many things. It plans to shrink its stable of games to focus on
a few popular areas like casino, racing and casual. One victim is
sports, a category that launched less than a year ago.
"We just have been spread too thin and pursued to many things,"
said Mr. Pincus. "We haven't done great job of funding our best
opportunities...so we're addressing that."
One of those opportunities is action strategy--a gaping hole in
Zynga's mobile portfolio. Earlier this week, Zynga released
"Empires & Allies," which borrows its name from one of the
company's past Facebook Inc. hits, to compete with the likes of
Supercell Oy's "Clash of Clans" and Machine Zone Inc.'s "Game of
War: Fire Age," two of the top-grossing games on Apple Inc. and
Google Inc.'s app stores.
"The level of quality and polish in game design that it takes to
be competitive in mobile today is just very different than it was
years ago, " Mr. Pincus said. It took less than three months to
make one of Zynga's first hits, "Mafia Wars" for PCs, he said.
"Empires," meanwhile, spent two years in development.
Sean McGowan, an analyst at Needham & Co., called the
ax-wielding a positive step. "Even after all the rounds of cost
reductions that we've seen, this was still a company with a cost
structure that was higher than you'd expect," he said.
But he cast doubt on Zynga's strategy of making fewer games.
"The number of games coming is fairly light for a company of this
size," he said. "There isn't a lot of evidence yet that fewer games
will lead to bigger games."
Zynga said it expects to launch between six and eight new mobile
games in 2015, including a second strategy game called "Dawn of
Titans."
Despite being late to the party, getting a strategy game out the
door is just one piece of Zynga's plan to become a force in mobile
gaming and return to profitability. That slow march to turn the
corner continued in the first quarter. when Zynga reported a loss
of $46.5 million, or 5 cents a share, compared with a loss of $61.2
million, or 7 cents a share, a year earlier.
Excluding certain items, it reported a loss of a penny a share,
the same as a year earlier but narrower than the per-share loss of
2 cents expected by analysts surveyed by Thomson Reuters.
Revenue climbed to $183.3 million, ahead of the $147.7 million
expected by analysts, according to Thomson Reuters. Zynga said
mobile accounted for 63% of the $167.4 million in bookings--the
amount of money spent on games--in the quarter.
It said the number of its gamers who play on mobile each day
grew 18% from a year earlier. It still has ground to make up:
Overall daily active users shrank to 25 million from 28 million a
year earlier, reflecting a drop in the number of people playing its
games on PCs.
For the second quarter, Zynga expects revenue of between $175
million and $190 million. Wall Street was looking for $156 million,
according to Thomson Reuters, which would have been slightly better
than a year earlier.
The company still expects another loss in the second quarter,
which will include restructuring charges of between $18 million and
$22 million related to the job cuts. The company projects a loss
between $50 million and $54 million, which is in line with Wall
Street's forecasts and below its year-ago loss of $62.5
million.
The eliminations are expected to be completed before the end of
the year, the company said, generating annualized savings of about
$45 million before accounting for the charges. Another $55 million
in savings will come through other belt-tightening measures, such
as eliminating outside vendors and trimming data centers, by the
third quarter of 2016, Zynga said.
It isn't the first time Zynga has cut deeply into its ranks,
which swelled under its founder's watch. In June 2013, Zynga let go
of 520 people, at the time nearly a fifth of its payroll. That left
it with roughly 2,300 employees, still a heady number but down from
the roughly 3,400 employees it had at its peak in 2012, the year
Zynga acquiredOMGPOP Inc. and its roughly 40 employees for $180
million.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
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