Pachter: More layoffs coming at Zynga

Michael Pachter
Seth Tipps

By Seth Tipps

October 21st 2013 at 9:21AM

Analyst says new CEO to make more cuts, but expects a swift return to profitability

Another round of layoffs can be expected at Zynga, as the company isn't done streamlining its business, claims analyst Michael Pachter of Wedbush Securities.

The former giant of social games has already cut over 500 jobs this year, is still in the red, and has abdicated the social gaming throne to King.com.

Even so, Pachter thinks the worst will soon be over and predicts a return to profitability as early as 2014 thanks to the new leadership from former Xbox head Don Mattrick.

"Zynga has had a rocky 2013 so far, but we believe that CEO Don Mattrick has the skills and experience to make necessary changes, and if he streamlines the company's cost structure and stabilizes the core business, we think that there is potential for shares to appreciate above our target," Pachter said in a note to investors.

"We have modeled 2013 conservatively, but believe the flexibility inherent in Zynga's business model makes a return to profitability (as early as 2014) far more likely than a period of sustained losses."

Pachter has in the past been more bullish on Zynga than the rest of the market, but he has anticipated a few of the company's misfortunes as well.

His current analysis makes some sense; Zynga still has a decent user base, so cutting costs could easily put the company in the black.

The question is if a company that depends on extensive data analysis to attract and retain users and lift conversions would be able to keep its numbers high without the current staff level.

Pachter says the company can do without the overheads, but the hundreds of employees who remain at Zynga may well argue a different case.