The Deal: Stagnating Zynga Lowers Borrowing Limit
NEW YORK (The Deal) - Zynga
San Francisco-based Zynga raised a big red flag when it laid off 18% of its workforce, or about 520 employees, on June 3. Now, according to a June 24 filing with the Securities and Exchange Commission, the company has amped up its cost-cutting program by reducing the borrowing limit on its revolver.
Lowering the borrowing limit will save Zynga money, since the company has to pay quarterly fees related to the untapped borrowing capacity on the credit facility. Zynga said no loans have been made under the credit agreement.
The original loan, issued on July 20, 2011, by lenders Morgan Stanley
Back then, Zynga was reportedly considering a bid for PC and mobile game developer PopCap Games Inc., which was acquired by Redwood City, Calif.-based Electronic Arts Inc.
Since then, Zynga has made smaller acquisitions. The company bought fellow game developer OMGpop Inc., which makes the mobile game, Draw Something, for about $200 million on March 21, 2012. That acquisition, however, didn't help Zynga grow its business.
In fact, among the layoffs Zynga announced were OMGpop workers in New York City. Zynga still has the Draw Something game, but it no longer has the hope of another blockbuster game coming out of that office, which is now closed.
According to Rob Enderle, principal analyst at San Jose, Calif.-based Enderle Group, Zynga has about 12 to 18 months to find a viable business strategy -- and it won't be easy. Enderle said in a Tuesday phone interview that Zynga's reliance on Facebook Inc.
"They've hit the Facebook iceberg, and they haven't figured out how to recover," Enderle said, referring to Zynga's loss of market share on Facebook.com. "They have to develop more business outside of Facebook."