Zynga cuts 18% of staff

Zynga is cutting 364 people, or approximately 18 per cent of its workforce, in an attempt to reduce costs. The news came as part of the company's Q1 2015 financial results.

"For our people, we need to create an empowered, entrepreneurial culture that fosters more creativity and innovation. Over the years we've seen that tighter, more nimble teams can drive faster innovation and deliver more player value," said CEO Mark Pincus in a statement.

"As a result, today we announced a cost reduction program to focus, simplify and align us against our most promising opportunities. We expect these cost reductions to generate $100 million in annualized savings. We are reducing our workforce by 364 people or approximately 18 per cent, decreasing our outside services and reducing our central functions. This was a hard but necessary decision and I believe this plan puts us in the best long term position for success."

"This was a hard but necessary decision"

Revenue for Q1 2015 stood at $183 million, down on Q4 2014 by 5 per cent but an increase on the same period last year of 9 per cent. Online game revenue was $148 million, an increase of 12 per cent year-on-year and advertising and other revenue was $35 million, down 1 per cent year-on-year.

Net loss was $46 million, compared to net loss of $61 million for Q1 2014.

"In Q1, we delivered results above our guidance generating $167 million in bookings and Adjusted EBITDA of $2 million. Our Q1 results reflect the progress we have made in our transition to mobile which now represents 63 per cent of total bookings - up 84 per cent year over year," said Pincus.

"Zynga remains focused on our mission of connecting the world through games, which is even more relevant and possible today. Our execution is focused in three areas - our products, where we're backing proven teams against the most valuable game categories; our people, to foster creative entrepreneurs; and our plan in order to fund our future with focus and simplicity."

Pincus added that the company planned to launch between six and eight games this year and would focus on five categories: Action Strategy, Social Casino, Invest And Express, Casual and Racing.

For Q2 2015 the company predicted revenue between $175 million - $190 million and a net loss between $54 million - $50 million.

Update

During Zynga's earning call, Pincus had the following to add to the above statements.

"I've been encouraged in my first few weeks by the level of talent and commitment throughout our company. But, I've also heard teams express frustration. They want to move faster and take more shots on goal.

"In order to win, we need to return to our entrepreneurial roots with leaders and teams empowered to drive outcomes. We've seen that across our industry - and in the early days at Zynga - tighter, more nimble teams can drive faster innovation and deliver more valuable experiences for players. While we're focusing the majority of our product investment on proven teams pursuing the most valuable categories in gaming, we also need to cultivate our next generation of leaders, teams and games by fostering a culture of creativity and innovation."

He also revealed that as part of the cuts Zynga's Orlando studio would be closed.

"We need to be more resourceful in how we manage our costs in order to fund our investments in great new games, people and data analytics. We've over-burdened our game teams with complexity and centralized expenditure."

CFO David Lee elaborated on the cost-cutting decisions:

"Today we announced a cost reduction plan which we expect to generate approximately $100 million dollars in annualized savings. This includes a workforce reduction of 364 people, or approximately 18% of our headcount including contractors. We expect this will generate approximately $45 million dollars in annualized savings and be complete in Q4 of this year.

"Furthermore, to be in line with our current business model, we plan to reduce costs and eliminate spend on outside and centralized services, which we expect to generate approximately an additional $55 million dollars in savings on an annualized basis. These non-headcount cost reductions are expected to be complete by the end of the third quarter of 2016."