Social gaming site Zynga (ZNGA) is slimming down. The company announced this week that it would lay off about 18% of its workforce, or 520 jobs, as part of its latest effort to cut costs. Zynga has been struggling with underperforming games and declining revenue for some time now. In fact, it's my worst stock pick of all time.
If you purchased shares of Zynga at the time of its IPO in 2011 for $10 a share, you know what I mean. Today, the stock trades at around $3 a share. So can the company's recent downsizing help turn things around? I'm not holding my breath.
Playing a losing game
This isn't the first time management has fired employees and shuttered offices. In 2012, Zynga dismissed 5% of its staff, closed offices in Boston and Texas, and killed a handful of games. One of the key issues is that Zynga has been slow to adapt its games for use on mobile devices. Zynga's CEO Mark Pincus admitted that it's been hard for Zynga to "successfully lead across mobile and multiplatform, which is where social games are going to be played," according to the Economist.
Zynga's reliance on Facebook has also contributed to the problem. Not long ago, Facebook accounted for more than 90% of Zynga's bookings and revenue. Although, to be fair, in 2012 the social network also depended on Zynga for around 15% of its total revenue. Still, Zynga's marriage to Facebook has made it hard for the game maker to really embrace mobile.
Pincus now argues that "[b]y reducing [Zynga's] cost structure today we will offer our teams the runway they need to take risks and develop these breakthrough new social experiences." While I'd love to believe this, I think Zynga needs a stronger footing in mobile if it's going to last in the gaming industry. At this point, I'm not sure that Zynga's latest round of strict cost-cutting and layoffs will be enough to save the game maker.
