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Tough times ahead at Zynga

Games provider Zynga has revealed plans to lay off up to 520 employees, which accounts for approximately 18% of its workforce, ahead of a predicted loss of $29 – 39 million in the April to June quarter (significantly higher than original projections). Zynga has had a rough ride of late, cutting staff by 5% last October and partnering with a real money gambling company in an attempt to retain its status as a leading developer of online games.

The most widely reported restructuring move has been the decision to completely jettison Zynga’s relatively recent acquisition OMGPop, creators of Draw Something (remember that?). One former OMGPop employee told Business Insider that the workforce had anticipated the layoffs, and their reaction when Zynga finally broke the news was complete relief, followed by nostalgic celebration: “Music was being played loudly, and people were ripping up Zynga hoodies and T-shirts.”

It is hoped that these latest cuts, including the closure of offices in California and Texas, will save the company up to $80 million in annual costs. Says CEO Mark Pincus: “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.”

The problem is, Zynga hasn’t been churning out enough of these “breakthrough social experiences” lately. In fact, the company has struggled to match the popularity of early successes like FarmVille and CityVille, revenues from which have seen a discouraging drop this year.

The advent of free mobile gaming has seen a slew of smaller, agile app developers steal away with tiny portions of Zynga’s market share, not helped by the fact that Zynga’s mobile presence is limited at best. Words With Friends currently ranks at 19 on Google Play, and the newer property Running With Friends is also the nineteenth most popular paid app in Apple’s App Store. Lewis Ward of IDC puts it best: “Zynga have gone from dominant player to one in a pantheon of game companies.”

And while Pincus’s decision to massively streamline the company will result in substantial cost savings, Wedbush Securities analyst Michael Pachter has his concerns. “You can’t save your way to prosperity”, he says. “The market is telling you that it’s not confident that revenues are going to grow.” And sure enough, Zynga’s stocks have plummeted since the news broke, falling by 12% on Monday.

Pincus was reported as saying at an all hands meeting this week that the firm has slowed down as it has grown, and is no longer moving “at Zynga speed”. Now that the company has shed a considerable amount of excess weight, the next few months will be particularly telling.

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