More Zynga Layoffs Wouldn't Be Surprising

 | Jul 03, 2013 | 10:44 AM EDT
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Now that Don Mattrick has left Microsoft (MSFT) to run Zynga (ZNGA) -- and has had the feel-good all-hands meeting Tuesday -- he's all set to start work on Monday.

There are sure to be lots of introductory meetings with staff and management. Mattrick has got to make people comfortable and excited. He's got to woo certain people to stay on board, such as current chief operating officer David Ko. He's also got to decide which current members of the management team would probably be better served finding new employment.

Mattrick will be looking over the internal processes for developing games and at what's currently in the pipeline at Zynga. The company has already said that most of this year's games will launch in the back half, but none of us on the outside knows how many the company has, nor the quality thereof. Mattrick is getting to see all that nitty gritty as we speak -- and he's hoping he's got something to work with there.

Regardless of whether there's good material in the pipeline, Mattrick is likely going to want to really revisit the internal processes for how games are developed at Zynga.

But, aside from all these basic blocking and tackling matters, the biggest thing he has to do is cut costs. Zynga is still a bloated beast of a company.

Even after the June bloodletting of 18% of its staff, Zynga still employs 2,500 people. The company has done $1.22 billion in revenue in the last year, and it has market capitalization of $2.7 billion. That's $488,000 in sales per employee, as opposed to $400,000 in the old headcount.

By way of comparison, there's a hot Japanese gaming company right now called Colopl that has three of the top 20 games in Japan at the moment. Its market cap is the equivalent of $1.8 billion, and it's set to take in $141 million in revenue this year. They have 200 employees. That's $700,000 in revenue per employee -- about double Zynga's figure.

Does that mean Zynga needs to cut its staff in half? They probably won't go that extreme. However, I wouldn't be surprised to see Mattrick end 2013 with between 1,800 and 2,000 employees instead of the current 2,500.

This is one of the no-brainer moves he can make to immediately help refocus the company and keep Wall Street on his side. The other changes will take more time, but they will ultimately be the key value drivers for Zynga over the next five to 10 years.



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