Social media game services company Zynga Inc. said late in the trading day on Monday that it is embarking on a new path to reduces expenses, including laying-off about 18 percent of its employees and closing several offices. 520 Zynga employess will be heading to the unemployment line and offices in New York City, Dallas and Los Angeles will be shuttered. The workforce reduction is expected to be essentially completed by August.
San Francisco-based Zynga, which is best known for “FarmVille,” “CityVille” and “Words With Friends,” expects the cost reduction measures will result in an estimated $70 million to $80 million in pre-tax annualized cash expense savings. Pre-tax restructuring charges are estimated in the range of $24 million to $26 million during this quarter and between $2 million and $5 million in the third quarter. The company expects to save about $15 million in stock based compensation during the second quarter as well because of a smaller staff.
“Today is a hard day for Zynga and an emotional one for every employee of our company. We are saying painful goodbyes to about 18% of our Zynga brothers and sisters. The impact of these layoffs will be felt across every group in the company,” said Zynga chief executive Mark Pincus in a note to employees published on the corporate blog.
He added, “These moves, while hard to face today, represent a proactive commitment to our mission of connecting the world through games” and that he is confident in the company’s strategy to become more competitive in the gaming market.
Zynga has been struggling to land a blockbuster game as sales for legacy games decline. According to a Zynga statement today, the FarmVille franchise continues to do well, but other games are underperforming. The company has been consolidating its efforts on mobile, including scrapping development on games that could provide a quick shot in the arm to sales, but would likely fade quickly. Instead it is keeping a focus on future games that are being revolutionized by mobile and touch screens.
In April, the company surprised by swinging to a profit of $4.1 million ($9.1 million on an adjusted basis) in the first quarter, but disappointed by guiding a net loss between 3 cents and 5 cents on revenue in the range of $225 million to $235 million. The outlook was less than the net loss of a penny per share on sales of $236.2 million Wall Street expected.
Zynga today made a few changes to that outlook. Sales, earnings per share (both GAAP and Non-GAAP) and adjusted EBITDA were re-affirmed. Net loss is expected in the range of $39 million to $28.5 million, compared to the prior range of $36.5 million and $26.5 million. Bookings are expected in the lower half of the $180 million to $190 million forecast in April.
The company also re-affirmed its full year 2013 outlook of adjusted EBITDA margin (EBITDA as a percentage of bookings) between 0 and 10 percent.
Zynga went public in December 2011 at $11 per share and shares climbed as high as $15.91 in March 2012. The subsequent 8 months weren’t as friendly with shares plunging as low as $2.09 in November before scratching their way back up to $4.00 in March this year. The news today was another reminder of the competitive nature of the social media and gaming business as well as the uphill battle towards profitability Zynga faces. Shares closed down by 12 percent in Monday action at $2.99 each.
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