Today: Zynga announces it will spend more than a half-billion dollars on a British gaming company and lay off its own workers as the company's financial struggles continue. Also: Google announces earnings a day after Motorola deal, Facebook hits all-time high and sends social stocks soaring.
The Lead: Zynga makes a last-gasp effort to right its sinking ship
Struggling social-gaming pioneer Zynga announced a big-money acquisition and cost-cutting efforts Thursday in a last-ditch effort to turn around its flagging financial results, which the company highlighted in depth with a surprise early filing of its 2013 earnings report.
Zynga announced it has agreed to spend $527 million to acquire British gaming company NaturalMotion, which offers mobile games such as "CSR Racing" and "Clumsy Ninja" that have been demonstrated onstage at Apple keynote addresses. Zynga acquired the company co-founder and CEO, Torsten Reil, as part of a workforce of approximately 260 employees spread across the globe, including a San Francisco office.
"Our acquisition of NaturalMotion will allow us to significantly expand our creative pipeline, accelerate our mobile growth and bring next-generation technology and tools to Zynga that we believe will fast track our ability to deliver more hit games," Zynga CEO Don Mattrick said in Thursday's announcement.
To make room for NaturalMotion, Zynga announced that it was laying off 314 of its own employees, a 15 percent reduction, as part of a plan to reduce expenses by $33 million to $35 million in 2014, before taxes and restructuring charges. It is the third round of layoffs in less than two years for Zynga, which cut 5 percent of its staff n October of 2012 and roughly 18 percent in June, firing a total of about 680 workers and shuttering four satellite offices around the United States.
"These are extremely difficult but important actions that are helping us drive improved results and create a new foundation for future growth," Mattrick said in an email to employees Thursday that was posted on the company's blog.
Zynga made bare its continuing revenue-generation issues by announcing its results for the final quarter and full year of 2014 a week earlier than expected. The San Francisco company lost $25.2 million, or 3 cents a share, on revenues of $176.4 million in the final three months of 2013, a 43.3 percent decline in revenues from the same quarter a year ago. For the full year, Zynga was able to stanch some of its gigantic losses, but still suffered the same marked revenue decline: The company lost $39 million on revenues of $873.3 million in 2013, after losing $209.5 million on revenues of $1.28 billion in 2012.
The company's faltering finances are a result of a shrinking stable of gamers using its products: Daily users of Zynga products decreased 51.8 percent year-over-year in the fourth quarter and 10 percent from the previous quarter, to 27 million, while players who spent money in games at least once a month fell to 1.3 million from 2.9 million in the year-ago quarter and 1.6 million in the third quarter.
On top of its layoffs, Zynga has made other key changes in 2013 in an attempt to right its ship, most notably replacing founder Mark Pincus at the helm with Mattrick, a former Microsoft exec who led that company's Xbox efforts.
Mattrick's latest attempt to set Zynga on the right path will be expensive, however, burning up much of the cash in Zynga's coffers, which was funded with the company's December 2011 initial public offering. Zynga sold shares then at $10 apiece, raking in $1 billion at a $7 billion valuation, but the company had just $465.5 million in cash and equivalents at the end of the year. The NaturalMotion acquisition will cost the company $391 million in cash, with the rest of the acquisition price funded with shares in the company.
Zynga closed Friday with a 4.1 percent gain at $3.56, as social-media stocks skyrocketed in the wake of former close partner Facebook's strong earnings report; in after-hours trading following the announcement, Zynga shot more than 20 percent higher to top $4.30.
SV150 market report: Facebook, Google lead big day for tech stocks
Wall Street enjoyed its strongest gains of 2014 on Thursday, as the Commerce Department's first reading of fourth-quarter gross domestic product growth hinted at an enticing economic path for the year ahead. Tech stocks were the big stars, as Facebook skyrocketed to record highs after its earnings report and Google gained after its sale of Motorola and moved even higher in late trading after releasing its financial info.
Facebook shot as high as $62.50 and closed with a 14.1 percent gain at $61.08, moving the Menlo Park social network's market capitalization higher than $150 billion for the first time. The stock's explosion had its roots in Wednesday's earnings report, which showed Facebook's profits growing by 700 percent in the fourth quarter as users and advertisers continued to plow into the company's mobile app. Facebook obviously isn't satisfied with its advances thus far, announcing Thursday that it will release a new mobile app aimed at dispersing news content from around the Web, called Paper. The app -- developed by a new Facebook team dedicated to stand-alone apps like Paper and Facebook Messenger and other projects -- will debut for the iPhone on Feb. 3. Founder and CEO Mark Zuckerberg's efforts outside of Facebook are also showing fruit, with Microsoft and IBM joining on to his Open Compute Project. Other social stocks joined in for Facebook's surge: Twitter gained 6.8 percent to $63.47, LinkedIn moved 4.1 percent higher to $212.40, and Yelp increased 4.9 percent to $75.47.
After Google's big Wednesday announcement that it had sold Motorola Mobility for less than $3 billion, the Mountain View search giant stepped to the fore again Thursday afternoon with its earnings report, which showed continuing revenue growth. Google reported profits of $3.4 billion, or $9.90 a share, on revenues of $16.86 billion, both reflecting gains of 17 percent from the same quarter a year ago. "We made great progress across a wide range of product improvements and business goals," co-founder and CEO Larry Page said in Thursday's announcement. "I'm also very excited about improving people's lives even more with continued hard work on our user experiences." After gaining 2.6 percent to $1,135.39 in Thursday's regular session, shares jumped more than 4 percent in late trading to top $1.180, which would be a new record high for the company. That share price will soon be cut in half, however, as Google appears set to execute a stock split that the company originally announced in April 2012.
NetSuite also announced earnings after the bell Thursday, and the company's shares shot up again in after-hours trading after gaining 7.7 percent to $113.39 in the regular session. Apple was one of the few Silicon Valley tech companies to not enjoy Wall Street gains Thursday, falling 0.2 percent to $499.78 as 9to5Mac writer Mark Gurman reported that Apple is pushing to get its Arizona manufacturing facility online quickly to produce sapphire crystals for upcoming products. Intel gained 0.2 percent to $ 24.74 after closing down its little-known PC app store, and Yahoo increased 1.2 percent to $35.31 after yet another acquisition. Pandora shot to record highs after Goldman Sachs said the company's stock could double, and Symantec plunged 7.3 percent to $22.38 after its earnings report included a disappointing forecast. Outside of Silicon Valley, Amazon divebombed after-hours following its earnings report, and Microsoft gained 0.6 percent to $36.86 amid reports that it had chosen an internal candidate for CEO and may push Bill Gates out of the chairman role.
Up: Facebook, Pandora, Twitter, Splunk, Salesforce, SolarCity, Yelp, Tesla, Workday, Zynga, LinkedIn, EA, Google, Gilead, SanDisk, eBay, SunPower
Down: Symantec, VMware, Apple
The SV150 index of Silicon Valley's largest tech companies: Up 27.74, or 1.9 percent, to 1,487.56
The tech-heavy Nasdaq composite index: Up 71.69, or 1.77 percent, to 4,123.12
The blue chip Dow Jones industrial average: Up 109.82, or 0.7 percent, to 15,848.61
And the widely watched Standard & Poor's 500 index: Up 19.99, or 1.13 percent, to 1,794.19
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.