October 24th, 2012 10:30 AM
SAN FRANCISCO — Struggling social games pioneer Zynga on Tuesday began trimming workers, shuttering studios and shelving older titles to get in financial shape to win in the long run.
“Earlier today we initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future,” said an internal memo by Zynga founder Mark Pincus.
“As part of these changes, we’ve had to make some tough decisions around products, teams and people.”
Zynga will be “parting ways” with five percent of its full-time workers and dump 13 games along with significantly cutting its investment in “The Ville” franchise, according to Pincus.
The San Francisco-based company will close its studio in Boston and trim its team in the Texas city of Austin. Zynga is also proposing the closure of its studios in Japan and Britain.
“We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us,” Pincus said in his memo, a copy of which was provided by Zynga to AFP.
“This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors.”
The cost-cutting moves are intended to let Zynga focus on more promising games and ramp up its network on the Web and on mobile devices.
“Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader,” Pincus vowed.
Pincus said he would discuss the changes during a webcast after the release Wednesday of Zynga earnings figures from the recently ended quarter.
“I’m confident this puts us on the right path to deliver on the promise of social gaming and make Zynga into an Internet treasure,” Pincus said.
Zynga shares plunged early this month after the company behind social games such as “FarmVille” cut its earnings forecast for the year.
Zynga cited curbed play of its games along with delays in releasing new titles as among the causes for reducing its revenue expectations.
The company said it will also be hit with a write-down of as much as $95 million from its purchase early this year of OMGPOP, the startup behind the “Draw Something” game that was a smartphone hit.
Zynga reportedly paid about $200 million for New York City-based OMGPOP.
The firm’s shares climbed more than three percent to $2.27 in after-market trading Tuesday on the Nasdaq. Zynga went public in December at $10 per share.
Zynga’s financial straits stem from its operations and not a cooling of the hot trend of people playing games with friends using smartphones, tablets, or social networks, according to Wedbush Morgan Securities analyst Michael Pachter.
Despite pulling in $1.2 billion in revenue, Zynga failed to turn a profit, the analyst said.
“They are too bloated,” Pachter said of Zynga. “Electronic Arts is profitable in social games at a fraction of the revenue.”
The cuts were expected since Pincus said earlier in the year that Zynga would strive to fix its cost structure.
“This is what they had to do,” Pachter said. “They are going to balance growth with what they need to spend.”
Zynga rose to stardom by tailoring games for play by friends at Facebook and went on to create its own online playground at zynga.com.
Heavyweight Amazon.com recently got into the game to compete with Zynga, and rival Electronic Arts has filed a lawsuit in August accusing Zynga of copying one of its “Sims Social” life simulation titles with “The Ville.”
Online retail colossus Amazon this year launched its first online social game in a challenge to Zynga and created a Game Studios team.