Fifteen percent of Zynga’s global workforce are to be laid off as part of new cost-cutting measures at the social games publisher.
That’s about 314 people, and the company estimates that the cuts could save $34 million before taxes.
The plan was revealed in Zynga’s fourth quarter earnings report alongside a $527 million deal to acquire mobile games and tools developer NaturalMotion.
When former Xbox boss Don Mattrick took over the CEO spot last summer he announced plans for a company-wide review, which Wedbush Securities analyst Michael Pachter said was likely to mean more cuts.
Today’s earnings call proved him right, but despite plenty of bad news in the company’s financials stocks rose 18 per cent after hours to $4.20 a share.
Zynga lost $25 million in the fourth quarter and $37 million for the entirety of 2013, which it blamed on a fairly catastrophic loss of monthly players.
Compared with last quarter that doesn’t look too good – the company only lost $68,000 in its third quarter – but it’s quite an improvement from last year’s Q4 losses of $49 million and an annual loss of $209 million.
This improvement is largely due to drastic cuts at the company which lost about 1.6 million unique monthly players over the past year.
The picture is much prettier when viewed through the lens of daily active users, and Zynga was able to claim 14 million DAUs on the web and 13 million on mobile platforms during Q4 2013.
It’s definitely interesting that stocks are soaring now considering that the publisher predicted an even worse start to 2014 with a loss of between $49 and $56 million for the first quarter.
The company’s SEC filing doesn’t provide a figure for the company’s projected profit or loss, stating only that revenues are expected to fall again.
This makes it unlikely that the cost-reducing measures estimated to save between $33-to-$35 million will be enough to offset the cost of the NaturalMotion acquisition and return Zynga to profit in 2014.
Even so, Zynga’s new CEO remained bullish on the coming year, and the long-term gains of such an expensive deal could easily outweigh the short-term cost to profit margins.
“We finished 2013 in a strong position and expect 2014 to be a growth year. We believe that Q1 will be a solid foundation for that growth and we expect substantial improvements for the remainder of the year across audience, bookings and Adjusted EBITDA,” said Mattrick.
“The investments we are making to grow and sustain our franchises are beginning to bear fruit, particularly in Zynga Casino and Words With Friends. We are committed to refining our skills in the art and science of building new hit games and in 2014, we will move aggressively into new genres that align with the timeless, entertainment categories that consumers care about.”