Zynga’s Shares Hit By Layoffs

Michael Teague  |

Online gaming company Zynga (ZNGA) announced on Monday that it would cut jobs by some 520 employees, 18 percent of its current workforce of 2,800, in a bid to save some $70 to $80 million.

In some ways, the company has become unrecognizable since it went public. Zynga originally entered the market as a cutting-edge tech company riding high off its seemingly rock-solid partnership with Facebook (FB), which until recently was the main interface for being able to access and use the online gaming service.

In the last week of March, the company unveiled a completely revamped website through which users that once needed to log in to play Zynga’s games from the Facebook homepage could access the games independently of the social media site.

Additionally, in early April the company made its first attempt to break in to the lucrative business of online gambling, with the unveiling of Zynga poker, and Zynga casino, a move that piqued investor enthusiasm and sent shares up some 15 percent.

But the company’s shares have never performed as well as they had been expected to. After a March, 2012 high of nearly $15, Zynga’s stock plummeted almost as low as $2 per share, and has not managed to break out over $4 dollars ever since.

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Investors have been concerned about CEO Marc Pinkus’ leadership after the company followed up the tremendous success of the game/app known as Farmville by flooding Facebook with all sorts of games and sequels, many of which have since been discontinued for lack of use.

The laying-off of 520 employees is a cost-cutting measure similar to the decision to discontinue underperforming game titles. Pincus was tremendously apologetic to the workers and their offices that will be closing in Los Angeles, Dallas, and New York in the near future, saying "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,"

Indeed, the whole reason for cutbacks, according to Pincus, is to help increase Zynga’s presence in mobile, a preoccupation of great concern for just about any company within reaching distance of the internet, or tech in general.

On first reaction, the layoffs did not do Zynga’s shares any favors, since they closed the day at $2.99 a piece, having dropped over 12 percent on the news. The company has lost nearly half of its share price over the past year, despite a brief rally during March and April.

As with the company’s foray into gambling on the internet, it will take time to see if these layoffs will ultimately end up harming or helping Zynga, but investors clearly did not appreciate any sign of contraction on the part of a company that has already seen an outflow of top-level employees over the last few months.

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