Struggling social games star Zynga said on Monday it is cutting nearly a fifth of its staff as it refocuses on games for mobile devices.
“Today is a hard day for Zynga and an emotional one for every employee of our company,” founder Mark Pincus said in a blog post as the company cut 520 jobs and closed several of the San Francisco-based company’s studios.
Zynga shares slid more than 11 percent to US$2.99 by the close of the trading day on the NASDAQ.
The layoffs would be felt across the entire company, Pincus said.
“None of us ever expected to face a day like today, especially when so much of our culture has been about growth,” he said. “But I think we all know this is necessary to move forward.”
The company has been pulling the plug on unpopular games and investing in titles for play on smartphones or tablets, as well as its own online arena at zynga.com.
Zynga rose to stardom by tailoring games for play by friends on Facebook.
However, the two firms have grown apart in the past year as Facebook develops new revenue streams and Zynga seeks new consumers.
“Zynga realized tying 100 percent of their revenue to a single platform — Facebook — was an unsustainable idea,” Forrester analyst Zachary Reiss-Davis said.
The San Francisco-based company has made moves into real-money gaming with the potential to generate windfalls from popular titles such as Zynga Poker.
The staff reduction was expected to be substantially completed by August and include the closure of Zynga offices in Los Angeles, New York and Dallas.
“Mobile and touch screens are revolutionizing gaming,” Pincus said in an e-mail message to staff. “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.”
He promised that laid-off workers would receive generous severance packages.
Zynga forecast that it would end the current quarter with a net loss of between US$28.5 million and US$39 million due in part to expenses associated with the layoffs.
Zynga will take restructuring charges of between US$24 million and US$26 million in the second quarter, and between US$2 million and US$5 million in the third quarter. The annualized savings from the reductions will be between US$70 million and US$80 million.
“While our Farmville franchise continues to perform well, other games are underperforming,” Zynga said in a news release updating its earnings forecast.
Zynga reported that it earned US$4.1 million on revenue of US$263.6 million in the three months that ended on March 31, while Wall Street analysts had expected the company to register a slight loss.
However, investors soured on the San Francisco-based firm’s shares with word that the number of people playing Zynga games daily had dropped when compared to the same period a year earlier.
During an earnings call with financial analysts, Pincus said this year would be a “transition year as we face the challenging environment on the Web and invest in developing the leading franchises and network across web and mobile platforms.”