Farmville-creator Zynga, the largest developer of games for Facebook, has laid off 18 percent of its staff. It's a new low in the company's slow decline since its $1 billion (?650 million) IPO in 2011.
But with Facebook games revenues up 12 percent?for the first quarter of 2013 versus the last quarter of 2012, it seems Zynga has little but itself to blame for its woes. The Facebook social gaming pie is getting bigger, Zynga just seems unable to get to the table.
It's the second mass layoff of Zynga staff in less than a year. In October 2012, the company laid off five percent of its workers, closing and down-sizing offices in Boston and Austin respectively.
In a letter to staff on 3 June, Zynga CEO Mark Pincus said it was "a hard day for Zynga" but that the layoffs were "necessary [for Zynga] to move forward". He said?the impact of the layoffs would be felt "across every group in the company".
The company made a ?133 million loss in 2012, and its stock valuation has fallen 64 percent since its IPO in 2011. It is believed that the staff cuts, around 520 jobs in total, will save the company $80 million (?52.3 million) per year.
Facebook, on the other hand, is going from strength to strength -- despite Wall Street "hating" the company. According to the firm's first quarter report for 2013, monthly active users are up 23 percent year on year and gaming revenues continue to grow.
"With the exception of our largest partner, Zynga, whose growth hasn't been as awesome as everyone had hoped, the rest of the community is actually growing quite well and is quite healthy," said Mark Zuckerberg.
In Facebook's 2012 IPO filings, Zynga was noted under "risk factors" and it was revealed that the games developer accounted for 12 percent of Facebook's annual revenues in 2011.
According to Facebook's first?quarter report, Zynga recorded a huge drop in volume of payments to Facebook of 37 percent. Other games developers increased their volume of payments by almost 60 percent, a clear sign that Zynga's dominance on the social network is being undone.
Zynga's $1 billion IPO in December 2011 was a glorious, but short-lived moment in the sun for the company. After going public with shares priced at $10 (?6.50), its share price peaked in March 2012 at $14.69 (?9.48), but within a year had hit a low of $2.12?(?1.39).
Its share price is now around $3 (?1.96), having dropped almost 11 percent on the news of the layoffs on 3 June.
The company has been criticised for its tough managerial culture, and was sued by EA,?which alleged that Zynga had copied one of its games. It purchased Draw Something-creator OMGPOP in a $180 million (?120 million) deal in March 2012, which was quickly followed by the rapid decline in popularity of the word guessing game.
A tweet from the OMGPOP official account suggest that the Zynga layoffs could have effectively closed OMGPOP.
In April, Zynga announced that it was launching real-money gambling games in the UK, but it remains to be seen whether the move into online gambling can help reverse the company's fortunes.
If not, the move will simply reaffirm what we all knew already: it's never a good idea to turn to gambling when times get tough.
Source: http://www.wired.co.uk/news/archive/2013-06/04/zynga-woes
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