More Layoffs and Reduced Outlook: Is Zynga Sinking?

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On Monday, Zynga (NASDAQ:ZNGA) announced two substantial pieces of news that the markets are still digesting. It’s no secret that the game publisher has struggled since its IPO — shares are down more than 68 percent since they hit the market in December 2011 — but the company hasn’t been totally neglected by investors over the past few months.

Shares are up more than 25 percent this year to date despite a 12 percent sell off on Monday, largely because of enthusiasm for the company’s prospects in real-money online gambling. However, enthusiasm may have built too quickly as the company just announced a massive round of layoffs and reduced its second-quarter 2013 financial outlook.

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“Substantial Cost Reductions”

“We are saying painful goodbyes to about 18 percent of our Zynga brothers and sisters,” CEO Mark Pincus wrote in a statement on Monday. “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.”

No one likes to see a company reduce its workforce — ideally there are more elegant ways to cut costs — but Zynga doesn’t have very many options on the table. With $1.6 billion in cash and marketable securities on hand and a market cap of about $2.34 billion, investors value the firm at just below $750 million. Financially, the company has its back against a wall.

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