Zynga to Slash Workforce, Refocus the Company on Fewer Game Categories

NEW YORK ( TheStreet) -- Less than a month after he returned as Chief Executive of Zynga (ZNGA), Mark Pincus is taking the axe to the social gaming company he co-founded. This might be the last chance to get the one-time high flier on track after several years of missteps.

Pincus and the gaming company though, have a lot to prove.

"Pincus certainly has his work cut out for him," said Arvind Bhatia, of Sterne Agee. "He is combating continued declines in Zynga's legacy web business while simultaneously restructuring the company's workforce."

Zynga, which once derived nearly all its revenue and traffic from games played via Facebook (FB), has been trying to shift to more mobile gaming. The efforts have shown some success. During the first quarter of the year, Zynga reported bookings of $167.4 million, with mobile bookings making up 63% of that amount. Mobile bookings also rose 84% from a year ago.

The job cuts were announced late Wednesday along with Zynga's first-quarter results. Zynga reported a loss of a penny a share, excluding one-time items, on $183.3 million in revenue. During the year-ago period, Zynga also lost a penny a share on $168 million in sales.

Initial investor reaction to Pincus' plan to slash Zynga's workforce by 364 jobs, or about 18%, and trim costs by $100 million annually, was upbeat, as shares rose Thursday. But the company's future remains unclear.

Pincus said Zynga would launch six to eight new games this year, including the release on Tuesday of Empires and Allies, the company's first mobile action-strategy game.

"I think that Mark [Pincus] is doing the right thing," said Wedbush Securities analyst Michael Pachter, who rates Zynga outperform with a $6 price target. "They're focused on fewer games [and] trying to exploit the highest value genres where they genuinely believe that they have a chance of success."

In order to do that, Pincus said Zynga has shifted its focus to five categories: action strategy, social casino, invest and express, casual and racing. As part of its new priorities, Zynga ended the development of two sports titles, "Tiger Woods Golf" and "NFL Showdown," which were being worked on under former CEO Mattrick.

Ending the development of those games, along with the job cuts, is seen as closing the curtain on Mattrick's nearly two-year tenure leading Zynga.

"I think Don did a phenomenal job," Pachter said, "But I think he might have been trying to take too many shots on goal, and Pincus is scaling back on some of the initiative to provide greater focus."

But even with the shot-in-the arm that Pincus may provide Zynga right now, "it is too early to say what effect a new CEO will have on the ability to improve the pipeline of titles," said Michael Olson, of Piper Jaffray, who has a neutral rating and $3-a-share price target on Zynga's stock.

Bhatia, of Sterne Agee, who has a neutral rating and no price target on Zynga's shares, remains concerned about Pincus' plans.

"The game pipeline looks more diversified and seems to have potential," Bhatia said. "But in an environment with rising acquisition costs, the question remains: 'Can Zynga return to a trajectory of profitable growth?'"

 

 

 

 

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