SAN FRANCISCO Zynga Inc has laid off 5 percent of its full-time workforce and shut its Boston office, launching a sweeping overhaul that may also see the struggling "FarmVille" creator close its Japanese and British offices.
The company, which is trying to arrest a steep decline in earnings as users gradually migrate onto mobile devices or rival games, plans to "sunset" 13 unspecified older titles, Chief Executive Mark Pincus said in a staff memo on Tuesday.
The company provided Reuters with a copy of the message to employees, which came a day before the struggling game-maker was due to report third-quarter earnings.
Pincus added that Zynga would significantly pull back its investment in "The Ville" game - a major recent initiative - and scale back on its Austin, Texas studio as it sought to cut costs. He also said the company is "proposing" the closure of its Japanese and British offices.
"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," Pincus said in his memo.
Rumors of the layoffs in Austin and Boston had spread on gaming blogs and over social networks during the day, and the company's shares closed down more than 5 percent, at $2.20. But they bounced back 4.5 percent to $2.30 in after-hours trade, following news of the cost-cutting initiatives.
"It's good to see them be realistic, but the real question is not a matter of profitability, it's ‘can you get revenue going the right direction?'" said Ben Schachter, a senior analyst at Macquarie Securities. "The Street doesn't want to see cost-cutting for what was supposed to be a growth company."
Pincus, who grew the company behind such ageing Facebook hits as "CityVille" "and Mafia Wars", will face employees at a quarterly gathering next week at the company's San Francisco headquarters.
Employees say morale is in steep decline, with Zynga forced this month to slash its 2012 results outlook for the second time.
Zynga went public to much fanfare in December at $10 a share but has since lost over three-quarters of its market value. It has been hit by delays in its game pipeline as older titles fade, while it has struggled to come up with new hits for mobile devices.
With its top line shrinking, Pincus told employees in an earlier memo just this month that he was disappointed by the results but urged his staff not to lose sight of the bigger picture.
(Reporting By Gerry Shih; Editing by Leslie Adler and Tim Dobbyn)