Funko has shown signs of improvement in its Q1-2024 financial results reported in May, largely due to its right-sizing strategy. The company has reduced inventory, increased margins, and paid down debt, yet concerns remain regarding its long-term growth and stock performance.
Despite a 43% gain since November last year, the stock’s recent movements suggest a seasonal cycle rather than a new uptrend.
Stock Performance and Seasonality
Between May 2024 and late June, Funko’s stock rallied from its recent low of $5.34 to nearly $11.00 per share, marking an over 100% increase. This rally reflects a recurring seasonal pattern, as the stock reached its 52-week high around the same period last year.
However, this pattern suggests that the stock’s performance is cyclic, with rallies around the Q1 earnings season followed by declines or consolidation periods. This trend indicates a seasonal cycle rather than a genuine long-term uptrend, making the stock appear overvalued in the current context.
Valuation and Financial Health
Funko’s stock is trading at 2x its book value. The company is in a recovery phase, having appointed a new CEO and focused on achieving net income and free cash flow. However, the latest financial report does not provide clear indicators of long-term growth beyond the standard holiday cycle.
Funko’s valuation remains high without consistent year-over-year price increases. The company will become a more attractive buy when it can demonstrate sustained net income and free cash flow.
Operations and Product Lines
Funko is renowned for its licensed collectibles and merchandise, featuring characters from popular culture, including TV shows, movies, video games, and sports. Its primary product line, Funko Pop, consists of 4” vinyl figures and includes various special editions and exclusives.
Other product lines include Funko Soda, Mystery Minis, Pocket Pops, Bitty Pops, games, and apparel. Funko also offers custom Pop figures and digital NFTs linked to physical products.
Additionally, Funko owns Loungefly, a brand that sells licensed accessories like handbags and backpacks. Loungefly products are available on its website and wherever Funko products are sold.
Distribution and Market Strategy
Funko distributes its products through major retailers such as Target, Walmart, Hot Topic, Box Lunch, and GameStop. The company also operates a robust e-commerce platform, where it achieves the highest margins. Funko’s strategy includes engaging its large fan base through its online presence and expanding into new international markets.
Q1-2024 Financial Results
In Q1-2024, Funko reported net sales of $215.7 million, a 14.36% decrease year-over-year and a 25.93% decrease quarter-over-quarter. Despite lower sales, the company achieved a gross profit of $86.3 million, with margins increasing to 40% due to lower freight costs, higher e-commerce sales, and better inventory management.
The net loss was $22.7 million, an improvement from a $55.3 million loss year-over-year. The company also reduced its debt by $27.4 million, bringing total debt to $246.4 million, and decreased its inventory to $112.3 million as part of its right-sizing strategy.
2024 Outlook and Future Performance
Funko’s outlook for 2024 includes projected revenues between $1.047 billion and $1.103 billion. For Q2-2024, the company expects revenues between $225 million and $240 million, with margins between 38% and 40%, and a net loss between $8 million and $4 million. Funko anticipates a soft Q2, with stronger performance expected in Q3 and Q4.
The recent appointment of a new CEO in May brings potential for strategic shifts, but the impact on financial performance will take time to materialize. Funko’s long-term growth and profitability remain uncertain as the company continues its right-sizing process and navigates seasonal trends.
Conclusion
Funko has a dedicated fan base and a diverse range of licensed products, contributing to its revenue generation. However, the company’s stock price shows a cyclical pattern, with seasonal rallies followed by declines.
Funko’s ongoing right-sizing strategy and new leadership need more time to demonstrate their impact on financial performance.
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I’m Nathan Goldstein, a writer and political analyst focused on simplifying complex social and political issues. My writing breaks down the intricacies of today’s society and politics to make them more understandable for you. I’m committed to providing clear and well-informed insights.
