Zynga's founder cedes control in a rare move for tech companies

Key Points
  • Zynga announced a new share-class structure that would voluntarily reduce the voting power of co-founder Mark Pincus.
  • Pincus — who is moving to executive chairman — is not selling any stock.
  • The company also reported earnings Wednesday, showing net income of $5.6 million on revenue of $208.2 million.
David Paul Morris | Bloomberg | Getty Images

Zynga announced a new share structure on Wednesday that voluntarily reduces the voting power of chairman and co-founder Mark Pincus.

The gaming company, which makes titles such as "Farmville," said on Wednesday that it was moving from a multi-class structure to a single class, reducing Pincus' control to about 10 percent, down from about 70 percent.

It's a rare departure from an oft-criticized trend in Silicon Valley, where founders tend to cling to the companies they founded.

Facebook CEO Mark Zuckerberg, for example, tried to propose a share structure that would allow him to maintain voting control of the company even as he sold off most of his shares to support philanthropic causes. That plan was later scrapped by the board amid shareholder pressure, though he still has effective control of the company. Snap gave up its right to be considered for the S&P 500, opting instead to stick with its plan to issue shares with no voting rights. Google, too, has multiple share classes.

Until now, Zynga has been lumped into that category. But on Wednesday, Zynga said it wanted to simplify its share structure and establish "parity for all shareholders." Pincus isn't selling any shares — indicating he is still a believer in its growth — but will become a non-executive chairman of the board as well.

The company also reported earnings on Wednesday, showing net income of $5.6 million on revenue of $208.2 million. Zynga also posting its highest mobile audience in four years thanks to franchises like "Words with Friends."

Pincus said in an interview with CNBC that he and the board "talked, questioned, when would it make sense to move from multi-class to single-class share structure."

"We felt like now is the right time," said Pincus.

Mobile gaming, in particular, is a very hit-driven business and one that's been tough for many players, including Zynga.

"In the case of Zynga, it missed the mobile transition from Facebook, and fortunately we caught it in time and now we're on it. We don't want to do that again," Zynga CEO Frank Gibeau said at the Morgan Stanley Technology, Media & Telecom Conference earlier this year.

"Our management team welcomes this significant vote of confidence from Mark in the work we've done turning around the company to-date, as well as the progress we're making in our growth strategy," the company said in a shareholder letter.

— Julia Boorstin contributed to this report.

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