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Cost base rebalancing: Zynga slashes 520 staff or 18% of its workforce as it looks to mobile

Hopes to save over $70 million annually
Cost base rebalancing: Zynga slashes 520 staff or 18% of its workforce as it looks to mobile
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Zynga (NASDAQ: ZNGA) is proving to be something of a curate's egg at the moment

On the upside, its new wave of mobile games such as Running with Friends, Battlestone and Solstice Arena are a step up from previous releases.

And it still has $1.67 billion in cash and equivalents.

But on the other, its share price is well under water and quarterly sales are declining.

The fact that the company's cost base is unbalanced shouldn't be a surprise, however, given how aggressively it has been in terms of acquisitions over the past couple of years.

And that's the background for the breaking news that Zynga is cutting 520 staff, or 18 percent of its workforce.

It will be closing various office locations too, including in New York, Los Angeles, Austin, and Dallas.

Tough times

The company says this reduction will occur across all functions and is expected to be substantially complete by August 2013.

Of course, laying staff off is a cost.

Zynga expects the move to cost between $24 million to $26 million, which will be booked in its Q2 sales. There will also be $15 million in terms of reversal of stock-based expenses.

For this reason, Zynga has updated its Q2 estimates. It now expects to make a loss of between $39 million to $28.5 million

However, in the medium term, it expects the move to save between $70 million to $80 million annually.

From the top

CEO Mark Pincus called it "a hard day for Zynga and an emotional one for every employee of our company," in an open email

However, he said Zynga's cash status meant it would offer "generous severance packages".

In addition, the move comes so the company can focus more strongly on mobile games.

"The scale that served us so well in building and delivering the leading social gaming service on the Web is now making it hard to successfully lead across mobile and multiplatform, which is where social games are going to be played," he explained.

"Our opportunity is to make mobile gaming truly social by offering people new, fun ways to meet, play and connect. By reducing our cost structure today we will offer our teams the runway they need to take risks and develop these breakthrough new social experiences."

Yet in afterhours trading, Zynga's share price dropped 12 percent to $2.99. The floatation price at IPO was $10.