NEW YORK (TheStreet) –– As Zynga (ZNGA) struggles to stay relevant amongst gamers, investors and the company's nearly 2,000 employees, the company is expanding into sports games, at the expense of its balance sheet.
Zynga announced Zynga Sports 365, a new brand that will house all of the company's sports games, including the recently launched NFL Showdown, as well as a pending game from Tiger Woods. Zynga, which has traditionally been in casual gaming, including games like Farmville, Farmville 2: Country Escape and Zynga Poker, is moving to sports gaming because it believes it's an nascent opportunity in mobile gaming.
Barclays analyst Christopher Merwin called the move into sports a "silver lining," in light of the company's weak second-quarter results and lowered 2014 guidance. Merwin rates shares "equal weight" with a $3 price target, down from $5 prior to the results.
"Sports are underserved, and there are a lot of consumers who consume and play sports," said COO Clive Downie in a phone interview. "We felt that we had the right product design, the right individuals to take a run at the category and get into a leadership position and then grow and sustain that over a period of time."Read More: Zynga Plunges: What Wall Street's Saying Both games will continue the company's freemium model, with in-app purchases on free-to-play products. Downie would not specifically say what the in-app purchases were when asked. However, these games, as well as the upcoming running game with Looney Tunes characters come at a cost. The company signed licensing deals with the National Football League, NFL Players Inc., Tiger Woods and with Warner Bros. Interactive Entertainment to license the Looney Tunes brand to bring the content to the games, and while financial terms were not disclosed, it's clear the company's cash balance is declining over time. At the end of Dec. 31, 2013, the company had $1.541 billion in cash and cash equivalents, and just $1.14 billion at the end of the second quarter. This largely reflects the Natural Motion acquisition, done in January, for $527 million in cash and equity. However, the company had $1.14 billion in cash and equivalents at the end of the first quarter, showing no sequential growth in cash. This may signal that the company cannot produce the necessary hit games needed to grow, despite having a headcount of nearly 2,000 people, a fact Downie tried to assure investors the company has the right strategy in place.
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