Zynga CEO Mark Pincus Confirms Layoffs: 5% of Workforce, Potential Closures For U.K., Japan Offices

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Zynga confirmed that it started laying off U.S.-based employees ahead of what is expected to be a weak third-quarter earnings report. In all, 5 percent of the company’s full-time workforce is being let go. As of the second quarter, the company had 3,200 employees so the final tally is probably close to 160 employees.

The key details are that the company is sunsetting 13 games and is significantly reducing its investment in its life simulation game The Ville, which as we reported earlier is being sent to Zynga’s India offices for maintenance.

The company also confirmed that it’s shutting down the Boston office, as we reported earlier. Zynga is also proposing the closure of its U.K. and Japanese studios.

Most of the offices that Zynga is shutting down or is considering shutting down began as acquisitions, actually. Zynga Boston used to be Conduit Labs, while the Austin office came out of the Challenge Games’ acquisition and the U.K. development efforts grew out of the deal to buy Wonderland Software. Zynga Japan came out of the Unoh acquisition.

Zynga alluded to upcoming layoffs earlier this month when it said it was cutting its revenue forecasts for the year. Zynga said bookings, or how much users have spent for virtual goods in its games, will come in between $1.085 billion to $1.100 billion, down from $1.150 billion to $1.225 billion.

The company has faced a challenging year as the early-mover advantage it had on the Facebook platform started to crack. Other game developers from Europe like King.com and Wooga have grabbed marketshare in the casual segment this past year, while midcore developers like Kixeye started to take off. As a result, Zynga’s contributions to Facebook’s overall revenues are now down to 7 percent from 12 percent a year ago, Facebook said in an earnings call today. At the same time, many gamers have moved onto mobile devices where Zynga doesn’t have such a assuredly dominant position.

Investors, who have sent Zynga’s shares down by as much as 80 percent or more over the past year, have challenged the company’s thesis that it has such a large network and an economy of scale that it is more immune to the hits-driven nature of the gaming business. At $1.67 billion, Zynga’s market capitalization is roughly the same as the total cash, short-term and long-term investments it had on hand at the end of the second quarter. After-hours traders are responding positively to news of the layoffs, however. Zynga shares are up 4.1 percent to $2.29.

Zynga has also undergone dramatic changes in management over the past year. EA executive John Schappert came over to the company for a short tenure, during which the company pursued sequels like Farmville 2 and Mafia Wars 2. In some cases, these sequels just didn’t work out as Mafia Wars 2 alienated much of the game’s original player base. Not too long after, Schappert and many of the mid-level executives he brought over from EA were pushed out. At the same time, plenty of long-time Zynga employees left after vesting, draining the company of its original talent.

Here’s the confirmation. We’ll be updating shortly:

INTERNAL NOTE FROM ZYNGA CEO AND FOUNDER, MARK PINCUS

Team,

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. We waited to share this news with all of you until we had first spoken with the groups impacted.

As part of these changes, we’ve had to make some tough decisions around products, teams and people. I want to fill you in on what’s happened and address any concerns you may have.

Here are the most important details.

We are sunsetting 13 older games and we’re also significantly reducing our investment in The Ville.

We are closing the Zynga Boston studio and proposing closures of the Zynga Japan and UK studios. Additionally, we are reducing staffing levels in our Austin studio. All of these represent terrific entrepreneurial teams, which make this decision so difficult.

In addition to these studios, we are also making a small number of partner team reductions.

In all, we will unfortunately be parting ways with approximately 5% of our full time workforce. 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. We appreciate their amazing contributions and will miss them.

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.

These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile.

Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader. Our success has come from our dedication to a simple and powerful proposition – that play is not just something people do to pass time, it’s a core need for every person and culture.

We will all be discussing these difficult changes more with our teams and as a company. Tomorrow, Dave and I will be hosting a post-earnings webcast (details to follow) and next week we will be discussing our broader vision and strategy during our quarterly all-hands meeting. 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.

If you have any immediate questions, I hope you will talk directly with your manager, Colleen, or me.

I look forward to talking with you tomorrow.

Mark