UPDATE 3-Zynga attacks costs, to slash headcount by 15 percent

Thu Jan 30, 2014 6:29pm EST

By Malathi Nayak and Gerry Shih

SAN FRANCISCO Jan 30 (Reuters) - Zynga Inc will slash costs in 2014 by shedding 15 percent of its workforce, the company that developed "Farmville" said on Thursday, adding that it will bolster its pipeline of new mobile games by buying game developer NaturalMotion for $527 million, moves that sent its stock up 20 percent after hours.

The San Francisco-based game company said it expects to cut 314 jobs as part of an expanded cost savings plan. Zynga also posted a narrower-than expected quarterly loss, and its shares soared to $4.26 after closing at $3.56 on the Nasdaq.

Zynga said it acquired NaturalMotion, which has created games like "Clumsy Ninja" for Apple mobile devices, for $527 million in cash and stock in a bid to grow its mobile game revenue.

"The missive is kind of the framework of a turnaround," Mike Hickey, an analyst at the Benchmark Company, said.

In July, Zynga hired the former head of Microsoft Corp's Xbox business, Don Mattrick, to replace co-founder Mark Pincus as CEO. Mattrick has been managing a series of layoffs, cutting costs and reviewing the company's product pipeline.

While the management's recent steps show a "a ray of optimism," key metrics of user engagement were still weak and Zynga must prove that it can use NaturalMotion's games and talent to deliver titles that are longlasting hits in a fad-driven mobile game market, Hickey said.

"Look at Draw Something....that was something that on the surface looked great but quickly evaporated," Hickey said.

Zynga had scant success with its 2012 acquisition of OMGPOP, the New York-based studio that created "Draw Something," for about $200 million.

Zynga's core business continued to deteriorate, but not as quickly Wall Street feared. For the quarter ended Dec 31, Zynga's revenue fell to $176.4 million from $311.16 million a year prior, compared to analysts' average estimate of $141.1 million, according to Thomson Reuters I/B/E/S.

Excluding certain items, it reported a net loss per share of 3 cents, slightly better than Wall Street view of a 4-cent loss per share, according to Thomson Reuters I/B/E/S.

The company forecast first-quarter revenue in the range of $155 million to $165 million, surpassing Wall Street's estimates of $145.6 million, according to Thomson Reuters I/B/E/S.

The game publisher, once among the hottest tech companies with rapid revenue growth from popular Facebook-based games, was caught off guard as the games industry saw a boom in mobile games. The company has renewed its focus on transitioning to smartphones and tablet titles, the increasingly preferred format for casual gamers.

"The guidance for 2014 was strong, even exiting out the deal, it was in excess of what the Street was looking for and that shows the stabilization and expected re-growth of their business," Hickey said.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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