Is Zynga doomed?

Chris Gayomali
The WeekJune 4, 2013
"None of us ever expected to face a day like today, especially when so much of our culture has been about growth," said CEO Mark Pincus.

The gaming giant is firing 520 employees and shuttering is its New York, Dallas, and Los Angeles offices

Encouraging people to tend to virtual farm animals might not be a sustainable business model after all.

On Monday, online gaming empire Zynga — maker of the puzzlingly popular FarmVille series — announced that it was slashing its workforce by 18 percent. That means 520 people are losing their jobs.

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The layoffs are being cast as a necessary cost-cutting measure by the company, and will shrink Zynga's staff to pre-IPO numbers while saving about $70 million to $80 million per year, reports the Wall Street Journal. As part of the downsizing initiative, Zynga's New York, Dallas, and Los Angeles offices are all shuttering.

Zynga — whose roster of games also includes Zynga Poker and Words With Friends — has struggled to prove that selling digital currency to millions of gamers accustomed to playing for free is a viable business. At the time of its initial public offering in late 2011, the company was lavished with praise from both Wall Street and the media, earning Zynga an overall value of $9 billion.

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Now a year-and-a-half later, the gaming titan is a shadow of its former self with a valuation of just $2.4 billion. Its stock plummeted another 12 percent after news of the staff cuts broke Monday before stabilizing... at least somewhat.

"None of us ever expected to face a day like today, especially when so much of our culture has been about growth," Zynga CEO Mark Pincus said in an email to employees. "But I think we all know this is necessary to move forward."

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The cuts caught most of the employees based outside of Zynga's San Francisco offices by "by complete surprise," report Matthew Lynley and Justin Sharrock at BuzzFeed. Just a few weeks ago, "it wasn't immediately obvious that Zynga's New York office was about to be terminated. At that time, Zynga New York was pitching new ideas for games and business was operating as usual."

Among the New York layoffs is the entirety of OMGPOP, the studio behind the hit iOS and Android game Draw Something. Zynga acquired the small studio last October for a surprising $180 million.

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I learned via Facebook I was laid off today and @ omgpop office is closed. Thanks @ zynga for again reminding me how not to operate a business

— Ali Nicolas (@ali_nicolas) June 3, 2013

What's makes the OMGPOP severance especially strange is that Zynga says it will refocus on developing games for mobile, after its core web business declined much faster than anticipated.

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Think of this as a "right-sizing" of Zynga, says Kara Swisher at All Things D, "to reflect a more somber reality that these mobile businesses are not as large as its web-based one that rode the startup to glory on the explosive growth of social networks, primarily Facebook."

Zynga is reportedly "winnowing down its games pipeline to focus on churning out a lower number of high-quality games," reports the Journal. One of those high-quality titles, at least according to one of Zynga's recent press releases, taps the star power of Food Revolution host Jamie Oliver, who will "infuse his passion for sustainable, unprocessed, and fresh cuisine" into a game called ChefVille. Inside, players "learn the importance of sustainability by growing fresh ingredients in recycled garden containers that they build from scratch using discarded materials like an old boot and broken pot."

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Zynga is currently trading for $3 a share.

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