The crops seem to be withering in the land of “FarmVille.”
When social game company Zynga (Nasdaq: [[ticker:ZNGA]]) announced on Monday plans to cut 520 employees, about 18 percent of its overall staff, its New York, Los Angeles, and Dallas offices reportedly landed on the chopping block. Zynga did not immediately respond to requests for further details but in a statement said it expects to reduce its costs by $70 million to $80 million through the layoffs. CEO Mark Pincus sent a note to his staff regarding the cuts.
For the team at OMGPOP, which San Francisco-based Zynga acquired in March 2012 for $180 million, the news marked a swift reversal of fortunes. Now the New York-based studio that created the popular “Draw Something” game is going dark as Zynga looks for ways to save money. OMGPOP announced Monday via Twitter that its doors would close.
One member of the New York game development community was not entirely caught off guard by the news. Margaret Wallace, CEO and co-founder of Playmatics, tells Xconomy via e-mail that Zynga’s absorption and subsequent elimination of OMGPOP seems to fit a pattern.
“That acquisition—and many others like it—amounted to a ‘real estate’ grab in terms of intellectual property, personnel, and audience,” she says. “The only ones who typically stand to gain, over the long term, in deals like this are the top tier of executives. Zynga consolidating and ‘cleaning house’ is the unwinding of that strategy in light of declining revenues from Facebook and the competitive nature of mobile and tablet gaming.”
Wallace says while she empathizes with the folks Zynga is letting go, she also encourages them to start their own gaming startups—or join companies, including hers, looking for talent. Playmatics, based in New York, develops original online casual games as well as titles based on television shows such as “The Walking Dead.”
“Out of the ashes can come great opportunity and innovations,” she says.
Shakeups in this industry, Wallace says, are not unheard of. “If there’s one lesson I have learned in this business, it’s to always have a Plan B, C and D,” she says. “Gaming is an ever-changing landscape, especially with the influx of both ‘smart’ and ‘dumb money’ over the past few years.”
The layoffs might not be enough to resolve Zynga’s troubles, according to Arvind Bhatia, senior research analyst in the Dallas office of brokerage firm Sterne Agee. Bhatia issued a research note that cast some doubts on Zynga’s plans following the announcement of staff reductions.
“While there are a few longer-term opportunities in front of [Zynga], the near-term outlook remains challenging,” he said. “Management’s reduced bookings guidance for the second quarter suggests that the recent success of ‘FarmVille 2’ and traction on mobile games have not been enough to offset the decline in the rest of the company’s portfolio.”
Zynga went public in December 2011 and questions quickly arose about how the company would continue to grow. Games such as “FarmVille” and “Words with Friends” made Zynga big on Facebook; the mobile gaming sector soon came into the company’s sights. The acquisition of OMGPOP gave Zynga some leverage in the mobile gaming scene as well as an East Coast presence.
Fifteen months after that deal, Zynga is tossing back what it caught. The company expects the layoffs to be complete by August.
