Can Funko (FNKO) net $1 billion in fiscal-year revenue while manufacturing and selling vinyl toy collectibles? The company came one step closer today as it reported Q3 2021 results, which beat expectations on revenue and EPS. The company predicts that its Fiscal Year 2021 sales will reach $915 million.
Funko says, in its Q3 discussion, that it cannot keep up with the demand for its collectible vinyl bobbleheads and other licensed merchandise. The company’s stock price has been on a one-year uptrend of 187% and has plenty of momentum. News of the earnings beat caused its stock price to rise. (See Funko’s stock charts on TipRanks)
Its innovative business strategy and successful financial performance will ensure future growth for the company, as well as a stock price uptrend. The company has a dedicated fanbase of collectors and enthusiasts, while also holding over 1,000 licensing agreements of the most popular brands.
As a result, I rate the company as bullish. (See Analysts’ Top Stocks on TipRanks)
What is Funko POP!?
Funko POP! is a four-inch-tall, vinyl collectible bobblehead figure which comes in a collectible box. The figures come from the hottest brands and franchises, such as Disney, Star Wars, Pokemon, Marvel, DC Comics, and the NBA.
The collectible figures can be found in over 25,000 retail locations, especially big box stores. Funko’s products are often resold online through third parties. There are phone apps like WhatNot for trading rare Funkos.
The company’s success is very much credited to its fan base. A third of its customers are avid collectors while another third are brand enthusiasts. People, young and old, collect Funko products as a hobby and as a past time.
The fans identify with these collectibles, which grow in value over time. The content is successful because it invokes a positive response in the buyer, who has an attachment with the license, character, or franchise. Funko calls it, “high quality, obsession-worthy content.”
Funko manufactures and sells a variety of branded collectible pop culture products, including bobbleheads, keychains, t-shirts, figurines, enamel pins, plush dolls, board games, backpacks, and NFTs (digital collectibles).
The merchandise is licensed and covers a large segment of popular culture, including music icons, movies, television shows, retro 80s, sports, video games, animation, and other cultural icons.
The company is highly engaged with its fan base and its retail distributors. Funko has a large e-commerce site, where fans pre-order special runs and limited-edition POPs. The company has agreements with big box stores for distribution and it makes special run Funko POPs for Walmart, Target, GameStop, Hot Topic, FYE, Amazon, and other companies. Fans are especially interested in these exclusive-run POPs.
NFTs
Funko continues business expansion by gaining new licenses and renewing old ones. The company has also introduced new products and product formats. It recently made its entry into NFTs (non-fungible tokens), which are digital collectibles.
These digital tokens with images are limited releases, and their production history is kept on a blockchain. Funko releases limited edition digital card packs that contain rare cards. Buyers then can sell these rare cards for high dollars on the collectibles market.
Funko partnered with TokenWave to create droppp.io. This was done in order to release its new digital card packs and to serve as a digital wallet for storing the NFTs. The digital content gives additional avenues for engagement with fans. Digital collectibles are thought to be the way of the future. The company is currently sold out of all digital tokens.
Q3 2021 Earnings Results
The company beat expectations on revenue and EPS. It reported revenue of $267.7 million, up 40% compared to last year’s quarter, and a net income of $18.4 million, up 17% compared to last year’s quarter. The company reports increasing revenues year over year.
Its U.S. sales were $191.3 million while its European and International sales were $58.9 million and $17.6 million, respectively. The company’s Funko POP! brand amounted to $193.1 million of the revenue. In addition, 11% of its sales came from its e-commerce site.
The company reported $653 million in net sales for Fiscal Year 2020 and it is estimating $915 million for Fiscal Year 2021. The current revenue estimate for Q4 is $240.74 million.
Wall Street’s Take
According to Wall Street, Funko has a Strong Buy consensus rating, based on three Buys assigned in the past three months. At $27.00, the average Funko price target implies 44.5% upside potential.
Conclusion
Funko once again beat expectations on revenue and EPS in its most recent earnings report. The company’s stock is trading higher and may experience a rally over the news.
The company’s successful performance shows that its products are in high demand to its fanbase of enthusiasts and collectors. I rate Funko as bullish because of its innovative business strategy, the potential for growth, and stock momentum.
Disclosure: At the time of publication, Alan Sumler had a position in Funko.
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