Zynga Charges Forward Despite More Layoffs
Desperate to reclaim territory in online gaming, Zynga (NASDAQ:ZNGA) CEO Don Mattrick is taking an aggressive approach. The company announced it would acquire Natural Motion Ltd., maker of the popular “Clumsy Ninja” game, while it would shed 314 jobs in order to cut expenses, Bloomberg reports. Both moves fueled a major surge in Zynga stock in after-hours and early morning trading.
The Mattrick era at Zynga is offering appeal to investors who considered the gaming company headed in the wrong direction under founder Mark Pincus. Most investor frustration can be traced to the company’s slow shift into the mobile arena, where apps for “Farmville” and other popular titles have remained absent for too long. Consumers who played Zynga’s games on Facebook (NASDAQ:FB) began looking for the programs as apps on mobile devices, but Zynga was unable to respond with any concerted effort.
Acquiring Natural Motion Ltd. reflects a deep commitment to mobile gaming, but the news was accompanied by a report of desperately needed revenue growth. Zynga bested revenue estimates in the fourth quarter of 2013 with an uptick in “Words With Friends” and other titles, Bloomberg reports.
The news propelled a rally for Zynga stock in after-hours trading, boosting shares 20 percent early on Friday.
The downward trend in mobile user stats will be addressed with the Natural Motion buy. Titles such as “Clumsy Ninja” command large followings among mobile device users, a fact that appears to be the driver behind an acquisition that will cost Zynga $527 million in cash and company stock. To pay for that tab, hundreds of Zynga employees will be left out in the cold.
The 314 employees being let go at Zynga make up about 15 percent of the company workforce, while $136 million of the $527 million purchase price will be in nearly 40 million shares of company stock (at January 29 quotes), Bloomberg reports. More than one quarter of the stock holdings have vesting options for Natural Motion executives included, according to the news service.
Despite the optimism reflected in the Zynga rally, investors are likely to be cautious for the long term. One analyst from Benchmark Company told Reuters the gaming company still needs to show the acquisition of Natural Motion was more than a trophy to show off to concerned shareholders. Citing the failure of “Draw Something,” a game Zynga picked up when purchasing OMGPOP in 2012, the Benchmark analyst said to the publication that Zynga would need to convert that momentum into sustained interest in a fickle consumer base.
Long-term success notwithstanding, the Mattrick approach to stabilizing Zynga is garnering support from analysts and shareholders alike. If there is to be a future for Zynga, it will have to show strength in mobile games. Natural Motion will put some wind at that strategy’s back.