A World Cup Play for Home-Gamers

 | May 09, 2013 | 5:58 PM EDT
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Maybe the best way to play the bump that the Brazilian economy will get from the 2014 soccer World Cup isn't through a Brazilian stock at all.

Oh, you've done just fine by putting money into World Cup plays in Brazil, such as the Brazilian airline Gol (GOL), which is up 18.7% in the last 12 months, or infrastructure manager CCR (CCRO3.BZ in Sao Paulo), up 35.3% in the last 12 months.

Certainly you've done better than you would have if you had bought the Brazilian market in general. The Brazilian economy is sputtering, and the iShares MSCI Brazil ETF (EWZ) is actually down 0.48% over the last 12 months.

But might I suggest the digital game giant Electronic Arts (EA) as a play on the World Cup? Yesterday, May 8, the stock soared 17.1% on news that the company had extended its license with World Cup soccer federation FIFA for exclusive rights on its popular line of soccer games.

Right now, it looks like Electronic Arts is playing a man up for 2014. Not only should the World Cup boost sales of the company's soccer game -- the company's website shouts, "FIFA 14 is coming!" -- the fiscal 2014 release schedule includes a new version of the company's NBA and the release of Battlefield 4. (The company's 2014 fiscal year ends in March 2014.)

The stock isn't exactly a Wall Street favorite right now. Although the company did beat analysts' estimates by a penny when it reported earnings for the March 2013 quarter on May 8 and raised its guidance for fiscal 2014 to $1.20 a share from $1.20, analysts remain worried by longer-term trends in the game industry. Growth for game consoles has slowed, and gaming is clearly shifting to mobile platforms. This creates uncertainty about margins and market share.

And like the movie business, digital gaming is a tough industry to model, since so much depends on whether a new game is a hit or a miss. For example, in the just-reported quarter, both Dead Space 3 and Crysis 3 both performed below expectations. The move from an industry dominated by sales of expensive boxed games to one dominated by online subscriptions has actually increased the stakes in the hit-or-miss game. Subscription revenue can be an incredibly steady and lucrative revenue stream, but it takes longer to develop and creates a huge revenue problem when subscriptions to a popular game start to decline. Managing a game franchise has also become a lot more complicated because the company has to simultaneously juggle subscriptions and packaged sales for multiple platforms. And all of these have their own sales channels.

Plus Electronic Arts hasn't escaped the revision treadmill. Developing a new version of a hit game is expensive and time-consuming, but it is essential. Without the refresh, even the most popular of games shows a gradual decline (or an abrupt drop-off) in sales. One of the big questions for Electronic Arts right now is whether the company can develop a hit to go into the every-other-year revision cycle with Battlefield. The verdict is still out on whether or not Respawn can take on this role.

My guess is that the market will see some gradual profit-taking in shares of Electronic Arts after the May 8 pop on the FIFA news. That would be a good thing from my perspective. I'd like to see a pullback to the pre-news level of $18 or $19. That would be a good entry point, in my opinion.

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