Mike Koozmin/The S.F. ExaminerPeople carrying packed moving boxes were seen filing out of Zynga’s South of Market headquarters Monday.

Zynga lays off 18 percent of its workforce

Social-gaming giant Zynga slashed 18 percent of its workforce Monday, raising questions about the San Francisco-based company’s future as it struggles to adapt its business to mobile devices.

The game developer plans to cut 520 jobs and close offices in New York, Los Angeles and Dallas as it continues to lose players to mobile-based rivals.

“None of us ever expected to face a day like today, especially when so much of our culture has been about growth,” CEO Mark Pincus said in a memo to employees. “But I think we all know this is necessary to move forward.”

The company did not respond to requests for comment about where the layoffs would occur, but several employees were seen Monday afternoon leaving Zynga’s South of Market headquarters with packed boxes. None commented about the layoffs.

Zynga said it expects the layoffs to save about $70 million to $80 million in annual costs. The company had already cut 5 percent of its staff last fall.

The layoff announcement sent Zynga’s stock price down. Shares closed at $2.99 Monday, down 12 percent after falling by as much as 15 percent earlier in the day. Trading was briefly suspended on two occasions.

The company’s stock value has lost 70 percent of its market value since its initial public offering at $10 a share in December 2011.

Zynga emerged as one of the top social-gaming companies by producing titles including “FarmVille,” “Words with Friends” and “Mafia Wars.” The games are primarily played through Facebook. But as players move from Facebook to mobile devices for their gaming needs, Zynga is struggling to keep up.

Pincus acknowledged that the company’s reliance on Facebook has hurt the company’s bottom line in recent years.

“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 multi-platform, which is where social games are going to be played,” he wrote in his memo to employees.

With the cuts, Zynga is projecting a second-quarter net loss of between $39 million and $28.5 million. The company had previously expected losses between $36.5 million and $26.5 million.

Zynga derives most of its revenues through “bookings” — the sale of virtual goods bought by players in order to enhance game play. The company expects to earn $180 million to $190 million in bookings during the second quarter.

The major cutbacks come just days after Zynga was hailed in San Francisco’s budget as one of the major tech firms that has helped the local economy recover.

Wire services contributed to this report.

Bay Area NewsEd LeeLocalZynga

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