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2/9/21 Update: Additional info posted here Funko is a good company with solid performance that is still trading at a reasonable price. Check out my DD below: Funko (FNKO) Share Price (1/28/21) : $11.97 Share Price (09/16/19) : $27.86 Short Interest (1/26/21) : 14% Next Earnings Release: March 2021 Funko Inc. is an American company that manufactures licensed pop culture collectibles, best known for its licensed vinyl figurines and bobbleheads. They have over 1,000 licenses across music, video games, film, TV, sports and many other pop culture properties. Some of their most popular licensed brands include Marvel, Disney, Star Wars, Pokemon, Fortnite, NBA, NFL, MLB, DC Comics, and a variety of anime properties. Several points below support the belief that Funko’s revenue grew during the 2020 holiday season and could continue well into 2021: · Increasing search traffic for Funko products · Direct sales growth is driving increased revenue and profitability · Parents are buying more gifts for their kids due to COVID · People have more disposable income from staying at home and not going out · Expansion of new products and licensees continuing through 2021 · Collectible investments like Funko POP! figures are exploding in value and popularity · Recent analyst commentary, valuation, and financials are positive FUNKO’S SEARCH TRAFFIC REACHES AN ALL-TIME HIGH IN Q4 2020 “Funko” google trends search traffic was up 20-30% in Q4 2020 (vs. Q4 2019) Searches for “Funko” were up 2x in December vs the beginning of November 2020 After falling in December, “Funko” searches are trending back up to all-time-high levels FUNKO’S DIRECT SALES INITIATIVES DRIVING HIGHER REVENUE & MARGIN Funko Direct Sales (B2C) grew significantly in Q3 and likely to continue into Q4 · B2C business as a percentage of sales increased to 8% in Q3 2020 from 4% during the prior year. · Funko’s e-commerce site grew over 150% vs. the prior year in Q3 2020 · The number of SKU’s on Funko’s e-commerce site rose tenfold since June 2020 “We went from only 200 of our own products [on our website] as late as June this year, to now well over 2,000 products available on our website.” – Funko CEO, Brian Mariotti Funko’s first ever Selena Pop! sold out online in just 40 minutes. Funko’s Q3 2020 Gross Profit % and Operating Margin % were near all-time-highs for the company · Funko’s Q3 Gross Profit Percentage of 38.6% was its second highest ever (behind only Q1 2020) · Funko’s Q3 Operating Profit Percentage of 10.8% was its second highest ever (behind only Q4 2018) · As Funko continues to grow it’s B2C e-commerce sales in Q4 and beyond, it is possible that gross profit and operating profit percentages could rise as well Retail customers were able to shift their Brick & Mortar inventory to their e-commerce channels to Funko unit sales · Funko resellers who didn’t sell online were severely impacted by Brick & Mortar closures during COVID stay-at-home orders. As 2020 progressed, some of these retailers were able to create online stores (e.g.- Shopify, Amazon, eBay, etc.) through which they could sell their Funko inventory. · Larger retailers that already had an omni-channel presence were able to shift their sales inventory from their Brick & Mortar stores to online fulfilment. Funko has also created a mini-Pop! factory at its headquarters where customers can make their own custom Funko at a price of $25 each · According to Funko, you can customize your Pop! using thousands of combinations. It’s “Think Build-A-Bear meets Funko Pop!” according to CEO Brian Mariotti. · With a $25 price point, the margins are likely higher than the average Pop! figure that retails for between $10 to $15 PARENTS BUYING MORE GIFTS FOR THEIR KIDS DUE TO COVID Parents likely splurged on their kids out of guilt of having shelter at home because of restrictions and to keep them occupied while they had to work at home. · “Faced with rising transmission of the virus, state restrictions on retailers and heightened political and economic uncertainty, consumers chose to spend on gifts that lifted the spirits of their families and friends and provided a sense of normalcy given the challenging year. We believe President-elect Biden’s stimulus proposal, with direct payments to families and individuals, and further aid for small businesses and tools to keep businesses open, will keep the economy growing.” NRF President Matthew Shay · “2020 was an unprecedented year for the U.S. toy industry. The growth we’ve seen in the toy industry speaks to the fact that parents are willing to put their children’s happiness above all else. The industry’s resiliency is very much underpinned by the reality that, in times of hardship, families look to toys to help keep their children engaged, active, and delighted. Put simply, toys are a big part of the happiness equation.” Juli Lennett - VP, U.S. Toys at NPD Toy sales were strong in 2020 as US retail sales of toys was up 16% vs 2019; driven by pandemic spending · According to NPD, “Much of the growth in 2020 was directly correlated to the COVID-19 pandemic and the changing consumer behavior associated with widespread lockdowns and school closures, the disposable income diverted from other types of entertainment to toys, as well as the onset of federal stimulus checks.” Consumer spending on toys increased measurably due to lockdowns; with strong performance continuing through the holidays · Per NPD, “While toy sales through mid-March 2020 were flat vs. 2019, widespread lockdown measures led to an abrupt increase in sales. This was further amplified by the distribution of stimulus checks beginning in April, resulting in the strongest month of growth for the year in May (+38%). Toy industry growth peaked again in October with an increase of 33% when the holiday season kicked off with Amazon Prime Day along with other retailer deals the same week.” Key retail sources reporting significant sales growth during Q4 2020 suggest Funko sales performance was strong · Target Q4 sales were fantastic showing signs of retail strength with a consumer that overlaps well with the Funko > Overall comparable sales were up 17.2% > Comparable digital sales were up over 100% > Store-originated comparable sales were up 4.2% > Store traffic was up 4.3% > Average ticket size was up 12.3% · GameStop Q4 sales were solid; showing additional potential for Funko sales > Same store sales were up 4.8% in Q4 2020 > Online sales increased 309% in Q4 2020 · According to the NRF, 2020 Holiday Retail Sales were up 8.3% compared to the prior year despite the pandemic > A surge in online shopping drove the increase (rising 32% vs. 2019) > The increase of 8.3% was over double the average increase of 3.5% that the industry had seen over the last five years. MORE DISPOSABLE INCOME TO SPEND AT HOME BY NOT GOING OUT The National Retail Federation (NRF) says that strong retail performance has been driven by consumers with stimulus checks and extra savings from not going out or traveling · “There was a massive boost to consumer wallets this season. Consumers were able to splurge on holiday gifts because of increased money in their bank accounts from the stimulus payments they received earlier in the year and the money they saved by not traveling, dining out, or attending entertainment events” – NRF Chief Economist Jack Kleinhenz. Spending on “experiences” fell significantly in 2020 · The US Travel Association forecasts that spending on travel fell $500 billion in 2020 from $1.1 trillion in 2019 > The industry has lost about 40% of its direct travel jobs (about 3.5 million jobs) in 2020; driven by a reduction in business travel > Foreign visitors to the US fell about 75% in 2020; driving a $119 billion reduction in travel spending · Concert spending is down dramatically > Live Nation reported a 98% decline in concert revenue in Q2 2020 and a 95% decline in concert revenue in Q3 2020 > About 5.2 million tickets were refunded in Q3 2020 and 23.3 million tickets had been refunded so far in 2020 (as of the end of Q3) · Movie theater attendance is down substantially > AMC theaters saw a 97% decline in attendance and a 91% decline in revenue in Q3 2020 > Cinemark saw a 96% decline in revenue > Marcus Corporation (which also owns hotels and restaurants) saw a 84% decline in revenue > Studio Movie Grill filed for bankruptcy · Other anecdotal information points to more stay-at-home activity decreasing recreational spending > Chuck E Cheese’s declared bankruptcy > Dave & Busters is considering bankruptcy and plans layoffs of +1,000 > CiCi’s Pizza declares bankruptcy > Starbucks saw fewer customers, reduced store hours, increased store closures, and a 5% decline in revenues in Q4 2020. This has led them to plan a shift to more “to-go” formats > Many Las Vegas Hotels and Casinos have decided to close “part-time” during the week due to lower attendance and travel. These include Encore, Rio, Linq, Planet Hollywood, Mandalay Bay, Park MGM, and Mirage The majority of food buffets at the major hotels and casinos have been shuttered for the time being Stimulus checks and other government programs to support consumer spending provide tailwinds for retail activity · The US government authorized more than $10,000 per person in stimulus spending in 2020 over the course of five relief bills totaling $3.5 trillion · More stimulus spending is expected; including a potential $1.9 trillion package that could include an additional $1,400 in stimulus checks MORE SKUS / LICENSES ARE GROWING AND EXPECTED TO CONINUE STRONG Active properties continue to rise and are expected to grow well into the future · The number of active properties in Q3 2020 grew 15% over 2019 · Active properties grew from 644 in Q2 to 715 in Q3 2020 · The potential universe for Funko Pops! is limitless as new films, tv shows, musicians, anime characters, sports stars, and other media properties are created every year. Some of the hot properties for this year and beyond · Star Wars: Baby Yoda, Mandalorian, Rey, Valentine’s Day, etc. · Marvel: WandaVision, Deadpool, Lucha Libre, Spiderman, Venom · Anime: Dragon Ball Z, Naruto, Bakugan, My Hero Academia · Films: Harry Potter, The Goonies, The Mummy, Fast & Furious · TV: The Office, Umbrella Academy, The Queen’s Gambit, The Simpsons · Sports: NFL, NBA, MLB, WWE · Others: Disney, Pokemon, etc. Retail exclusives can grow the potential universe of licenses and increase retailer buy-in · For example: A retailer like GameStop could lobby Funko to make a GameStop exclusive of the WallStreetBets Kid like this person suggested here. (The exclusive Pop! would be made into a limited edition and sold only to GameStop to sell at their stores) COLLECTIBLE INVESTMENTS ARE GROWING IN VALUE & POPULARITY · Funko: The average Pops! Figure has a retail price from between $10 and $15 which allows most people an affordable entry point into collecting. Over time some Pops! Figures increase substantially in price; from $50 to $100 to even several thousand dollars. While some collectors buy Pops! as primarily an investment, many more buy them as a way to show their fandom. Whether they are avid Star Wars, Harry Potter, Pokemon, Sports, or Anime fans; collectors build large collections and show them off to friends. · Sports Cards: To those paying attention, sports cards have been on a massive run with some cards worth more than your parent’s house and your sister’s car. Since the pandemic started, the demand for sports collectibles from basketball to football to soccer (and many others) has skyrocketed. Countless videos of box-breaks and pack openings have become the norm on social media. Some of these boxes are being purchased for tens of thousands with “hits” ranging from several hundred to hundreds of thousands. · Collector’s Universe: This company that grades sports cards and other collectibles has tripled in value since June 2020. The number of sports collectors grading cards has exploded as demand rises. The popularity of grading sports cards is expected to maintain as prices continue to rise and the hobby becomes more mainstream. ANALYST COMMENTARY AND FINANCIALS ARE A POSTIVE FOR THE STOCK Piper Sandler: Upgraded Funko from “Neutral” to “Overweight” (raising their price target from $6 to $12). · Analyst Erin Murphy sees evidence of “subsequent revenue pillars” with their recent launch of Snapsies at 800 Target stores; along with an expansion into board games and its digital efforts, which include a newly launched website in six European countries. Valuation Comparison: Market Cap / Revenue (TTM) · Funko: MC - $604 million / Rev - $640 million (0.9x sales) · Mattel: MC - $6.27 billion / Rev - $4.43 billion (1.4x sales) · Hasbro: MC - $13.13 billion / Rev - $5.17 billion (2.5x sales) Key Financial Trends For Funko · Q3 2020 EPS (Adjusted) = $0.31 > Third highest ever (only Q4 2018 & Q3 2019 were higher) · Q3 2020 Revenue = $191 million > Fourth highest ever (only Q4 2018, Q3 2019, and Q4 2019 were higher) · Q3 2020 Revenue increase vs prior quarter of 94% > Q1 and Q2 2020 saw significant declines due to COVID > Q3 2020 only down 14% vs Q3 2019 despite Q2 2020 being down 49% > Q3 2020 strength driven by Funko adapting quickly to online in the US market. (Q4 2020 revenue growth could be aided substantially by Funko’s development of their e-commerce shop in Europe.) · Q3 2020 SG&A was reduced 20% vs. the prior year as Funko rationalizes costs and adjusts to focus more on D2C e-commerce TL;DR After a tough summer, Funko sales have rocketed back in Q3 to near where they were pre-pandemic; setting up a potentially historic earnings for Q4 2020. Google search activity suggests that Funko is as popular as ever and is set up well for a strong year in 2021. People are spending less on “going out;” instead buying things to use at home and presents for their kids. As time passes, Funko’s status as a popular collectible only continues to gain momentum. Their direct sales initiative allows Funko to capture additional margin by sidestepping traditional brick and mortar retail to reach their customers. Investments in collectible products like Pops! and sports cards continue to increase in popularity and price. And the company continues to release even more products beyond Pops!; including games and apparel. While some Wall Street Analysts have already begun to take notice, a strong Q4 earnings announcement can drive even more attention to the stock. Positions: Long Shares & Calls Disclosure: I am long FNKO. This is not investment advice. I reserve the right to buy or sell FNKO without updating this thread. Do your own research and share (or not share) with the community in this thread. Thank you to the others on Reddit that shared this idea earlier. Feedback: If you have any additional information, ideas, or critiques please make sure to comment. It is great to get the perspective of others when making an investment. Also that information can be incorporated into future posts and updates. Previous DD:Herman Miller
Who killed notorious 1940s gangster Benjamin ‘Bugsy’ Siegel, the father of modern Las Vegas? Was it another mob boss? The lover of his best friend's wife? One of the men he was embezzling money from? His Mafia spy girlfriend? His own bosses? The possibilities are endless—and puzzling.
(Note: be warned, kind of long background info here, but I think it’s needed) As far as interesting lives, few can beat Benjamin ‘Bugsy’ Siegel. Born February 28, 1906 in Brooklyn, New York, Siegel came from a poor Jewish family. Before he was even twenty, he’d established a profitable protection racket and a lengthy rap sheet, including armed robbery, rape, and murder. Siegel had connections—he was childhood friends with Al Capone and familiar with many of the well known New York City mobsters of the day—and he also had a taste for violence. Soon, he’d established a small mob specializing in hits for the numerous bootleg gangs of the time with Meyer Lansky, a fellow mobster. His violence and short temper led some to say he was “crazy as a bedbug,” giving him his famous nickname ‘Bugsy,’ which he even more famously despised. Siegel was making money, which he was happy to flaunt, but he wanted more. He carried out several hits for Charles “Lucky” Luciano, and eventually formed Murder Inc. with his associates, establishing himself as a skilled hitman for the National Crime Syndicate, an organization of mob families. But Siegel was already making enemies, and several assassination attempts were made on his life, some of which came very close to being successful. So, it was time to move out west. In California, Siegel helped establish gambling rackets, drug trade routes, and prostitution rings. His star was rising outside of the Underworld too, and in addition to the numerous politicians and police on his payroll, he befriended stars like Cary Grant and Clark Gable. Incredibly, while in Italy with a socialite in 1938, he met Hermann Goering and Joseph Goebbels, whom he immediately disliked and offered to kill. The offer was declined by his lady friend. Yet Siegel was not always looked upon fondly by the upper echelons of Hollywood; he borrowed exorbitantly from celebrities, knowing he would never be asked to pay it back, and began to develop extensive plans to extort movie studios. After several trials and acquittals for failed and successful hits, it was time to leave California. Siegel’s next stop was Las Vegas where, in 1945, he purchased and developed the Flamingo Hotel & Casino, the first luxury hotel on the Vegas strip. As you might imagine, that was expensive, and over the course of its construction, costs were equivalent to over $61 million in today’s money each year. Siegel’s checks were bouncing, and many of the locals felt threatened by him. Mob bosses were beginning to lose patience with Siegel too, and he was refusing to report on business, claiming he was running the California Syndicate himself. For now, they left him alone—he'd been valuable in the past, after all. The Flamingo Hotel was a dismal failure, and people—very powerful people—were starting to get tired of waiting for the promised money to materialize. By 1947, it was gradually turning around—with the help of Meyer Lansky, now in Vegas—but for most, it was too little too late. Death: On June 20, 1947, Siegel was gunned down in the Beverly Hills home of his sometimes-girlfriend Virginia Hill. He was 41. Somewhat suspiciously, Hill had taken an unscheduled flight to Paris the day (or by some sources, week) before. As Siegel sat reading the newspaper with associate Allen Smiley, an unknown assailant fired with a .30 caliber military M1 carbine through the window, striking Siegel many times (NSFW). Two shots hit his head, with one passing through his right cheek and the other his nose. Though he was not hit directly through the eye (NSFW), a bullet-in-the-eye death became a popular trope in Mafia media, including in the Godfather, where a character based on Siegel is murdered in the same manner. The death was covered extensively in the media, which portrayed Vegas as a bastion of sin and mafia activity. As early as the day after Siegel’s death (or, as some sources have it, during Siegel’s death), however, more personal things were changing: Lansky walked into the Flamingo and took over operations. Theories: The mob is famously tight-lipped, and Siegel’s death was no exception. Despite the extensive speculation, no precise motive has ever been confirmed. There was a massive police investigation, but in a case like this, that doesn’t mean much, nor does the media coverage. The media in particular salivated over the potential for splashy crime stories, and the circumstances of this case have been complicated by contemporary coverage. Several days after Siegel’s death, for example, one newspaper ran the headline “BUGSY'S BLONDE EX-WIFE GIVES CLUES TO HIS KILLERS,” while another read “BUGSY'S EX NO AID IN HUNT.” As far as the most popular theories: A Mob hit: A mob hit seems like the most obvious cause, and it's a theory that’s been popularized by several novels and the 1991 movie Bugsy. It would certainly make sense; it was the mob’s money Siegel had been spending wildly on his unsuccessful hotel after all, and he’d been growing uncooperative. Of the proposed hitmen, the most often mentioned are Frankie Carbo (Ralph Natale, former Philadelphia boss and Mob squealer, claimed Carbo as the true killer) and Eddie Cannizarro, both Syndicate hitmen. But even here, there are several proposed reasons for the hit. As some have it, mob money from the Flamingo’s funding was going missing and Siegel was skimming off the already meager profits. Skimming could have been forgiven, if the Flamingo was a success. It was not. After a meeting of the Syndicate’s “Board of Directors,” it was allegedly decided that Siegel would die, with Lansky reluctantly agreeing. Others believe that a hit might have been ordered whether Siegel was skimming or not; the Flamingo was simply too expensive. As one historian put it, “Bugsy was a dreamer. And he was dreaming with other people’s money.” Yet many have also argued against this theory. According to one of Siegel’s emissaries in Vegas, for example, no one would have dared to order a hit on Siegel. He and Lansky were close until the end of their lives, and Lansky would never have agreed to it. And if Lansky would not agree, then Charles “Lucky” Luciano, who was “the head of everything,” would never have agreed either. And as others have argued, the method of execution (NSFW) didn’t match with typical mob methods; firing a weapon from outside a house increased the risk of missing as well as the risk of being seen. The preferred method was a clean shot to the back of the head. According to some, the oft-referenced money problems of the Flamingo also wasn’t an issue. At the time, Lansky was paying back any investor who wanted out, and the gradual uptick in its profits was quickening by the day. Personally, I don’t think the financial uptick invalidates the theory. If the hotel was starting to make more money, then that might be all the more reason to get rid of the difficult-to-manage Siegel and take over. Wire Business: At the time of his death, Siegel was embroiled in a dispute with Jack Dragna, dubbed the Capone of Los Angeles. Siegel and Dragna had had an uneasy partnership in previous years, but Dragna, far less powerful than Siegel and the New York gangs, resented the income and respect Siegel commanded. This came to a head when a racing wire service (a way of cheating on bets) between the two of them soured. Siegel wanted control for himself, and ordered Dragna to turn it over or be killed, to which Dragna agreed. After Siegel’s death, control was returned to Dragna. He had a motive, but his story would only have been one among many for a man as ruthless as Siegel, which, in a way, complicates things further—there’s a real possibility that the culprit in Siegel’s murder was someone never even considered. His list of enemies was long, varied, and probably mostly unknown. Yet another man who had reason to want Siegel dead, for example, was his bodyguard and muscle Mickey Cohen. A Cleveland gangster, Cohen was given control of the Syndicate’s West Coast gambling operations. If Siegel still lived, he would never have gotten it. Interestingly, he, like Al Capone before him, was eventually felled by tax evasion. Virginia and/or brother: The same emissary of Siegel who shot down the mob hit theory believed that Virginia Hill’s brother had carried out the murder. The brother, a marine stationed at Camp Pendleton named Bob or Bill, had seen Siegel and Virginia fighting outside the Flamingo as well as the bruises Siegel had left on her and threatened to kill him. Another of Virginia’s brothers, Chuck, was also at the Beverly Hills house when Siegel was murdered. Virginia herself has also been the subject of suspicion. Nicknamed the “Queen of the Mob,” Hill worked, among other powerful jobs, as a cash courier, laundering money and stolen goods as well as blackmailing high-ranking men through sexual liaisons. Her relationship with Siegel was tempestuous at best, and she may have been embezzling from the Flamingo. She’s also been accused of two-timing with rival mob operations, though this is unconfirmed. Eventually fleeing to Europe permanently, Hill died of an overdose in 1966, though some have alleged that she was actually murdered after she, completely broke, attempted to leverage her intimate knowledge of the Mob. Rival Mobs: Unfortunately, I can’t find much concrete information about this theory (note: story of my life researching these posts haha), but some believe that rival mob operatives wanted Siegel gone. He was a powerful—and very public—figure, which made him something of an obvious target in the cut-throat world of Mafia politics. Moe Sedway: This is a relatively new theory, emerging after Robbie Sedway was interviewed for LA Magazine after his mother’s death. Here, he alleged that Siegel’s murder was ordered by his mother Bee, the wife of powerful mobster—and childhood friend of Siegel’s—Moe Sedway. According to Bee, who wrote and scrapped a book proposal called Bugsy's Little Lunatic (Siegel’s nickname for her), Siegel had threatened her husband, who was the Flamingo’s numbers man, and therefore watching Siegel—who, remember, had been accused of skimming—closely. So Bee contacted Mathew “Moose” Pandza, a truck driver whom Bee married after Moe’s death. Moose, the perfect killer, since he had no connection to the Mob, then shot Siegel to death. The problem with this theory, however, is that Bee is the only source; as she herself said, anyone who could contradict her was dead. She also squandered most of the fortune left to her by Moe over the course of her life, and died almost penniless. All of the above: Some believe that almost all the suspects were involved. Usually, it goes something like this: “Virginia supplied the location and received some reward. Cohen knew Bugsy's schedule for the evening, but happened to not be watching him that night…Dragna ordered the hit, with the approval of Lansky and Luciano.” It’s unlikely, but it certainly has its believers, if only for the convenience of it. Final Thoughts & Questions: This case is interesting to me because of the sheer number of suspects. In the end, a mob hit seems the simplest and most likely explanation. But there were so many people with means, motive, and opportunity. So:
Why was Siegel killed and who killed him? The Syndicate, rival mobs, Virginia Hall, her brother, Mickey Cohen, Jack Dragna, Mathew Pandza (as ordered by Moe and/or Bee Sedway), several of the suspects, or someone else entirely?
Hi all, To celebrate the return of Undervalued to the Reddit community, I decided to put together a quick DD and post it on a stock that I have had my eye on for a little while. It's still a "work-in-progress" and I may potentially update it later on Reddit with more information or detail if I have time at some point in the future. If you have any opinions, thoughts, or additional information, please share it. Positive. Negative. Neutral. All information is helpful and informative to the community. (I thought the feedback received from my first DD posted to this sub was quite helpful and I look forward to what you have to say.) Thank you to u/BuyLowSellNever for turning the sub back on; allowing us to share and discuss ideas with the broader community in a thoughtful and respectful manner. Best wishes. - LA Funko (FNKO) Share Price (1/28/21) : $11.97 Share Price (09/16/19) : $27.86 Short Interest (1/26/21) : 14% Next Earnings Release: March 2021 Funko Inc. is an American company that manufactures licensed pop culture collectibles, best known for its licensed vinyl figurines and bobbleheads. They have over 1,000 licenses across music, video games, film, TV, sports and many other pop culture properties. Some of their most popular licensed brands include Marvel, Disney, Star Wars, Pokemon, Fortnite, NBA, NFL, MLB, DC Comics, and a variety of anime properties. Several points below support the belief that Funko’s revenue grew during the 2020 holiday season and could continue well into 2021: · Increasing search traffic for Funko products · Direct sales growth is driving increased revenue and profitability · Parents are buying more gifts for their kids due to COVID · People have more disposable income from staying at home and not going out · Expansion of new products and licensees continuing through 2021 · Collectible investments like Funko POP! figures are exploding in value and popularity · Recent analyst commentary, valuation, and financials are positive FUNKO’S SEARCH TRAFFIC REACHES AN ALL-TIME HIGH IN Q4 2020 “Funko” google trends search traffic was up 20-30% in Q4 2020 (vs. Q4 2019) Searches for “Funko” were up 2x in December vs the beginning of November 2020 After falling in December, “Funko” searches are trending back up to all-time-high levels FUNKO’S DIRECT SALES INITIATIVES DRIVING HIGHER REVENUE & MARGIN Funko Direct Sales (B2C) grew significantly in Q3 and likely to continue into Q4 · B2C business as a percentage of sales increased to 8% in Q3 2020 from 4% during the prior year. · Funko’s e-commerce site grew over 150% vs. the prior year in Q3 2020 · The number of SKU’s on Funko’s e-commerce site rose tenfold since June 2020 “We went from only 200 of our own products [on our website] as late as June this year, to now well over 2,000 products available on our website.” – Funko CEO, Brian Mariotti Funko’s first ever Selena Pop! sold out online in just 40 minutes. Funko’s Q3 2020 Gross Profit % and Operating Margin % were near all-time-highs for the company · Funko’s Q3 Gross Profit Percentage of 38.6% was its second highest ever (behind only Q1 2020) · Funko’s Q3 Operating Profit Percentage of 10.8% was its second highest ever (behind only Q4 2018) · As Funko continues to grow it’s B2C e-commerce sales in Q4 and beyond, it is possible that gross profit and operating profit percentages could rise as well Retail customers were able to shift their Brick & Mortar inventory to their e-commerce channels to Funko unit sales · Funko resellers who didn’t sell online were severely impacted by Brick & Mortar closures during COVID stay-at-home orders. As 2020 progressed, some of these retailers were able to create online stores (e.g.- Shopify, Amazon, eBay, etc.) through which they could sell their Funko inventory. · Larger retailers that already had an omni-channel presence were able to shift their sales inventory from their Brick & Mortar stores to online fulfilment. Funko has also created a mini-Pop! factory at its headquarters where customers can make their own custom Funko at a price of $25 each · According to Funko, you can customize your Pop! using thousands of combinations. It’s “Think Build-A-Bear meets Funko Pop!” according to CEO Brian Mariotti. · With a $25 price point, the margins are likely higher than the average Pop! figure that retails for between $10 to $15 PARENTS BUYING MORE GIFTS FOR THEIR KIDS DUE TO COVID Parents likely splurged on their kids out of guilt of having shelter at home because of restrictions and to keep them occupied while they had to work at home. · “Faced with rising transmission of the virus, state restrictions on retailers and heightened political and economic uncertainty, consumers chose to spend on gifts that lifted the spirits of their families and friends and provided a sense of normalcy given the challenging year. We believe President-elect Biden’s stimulus proposal, with direct payments to families and individuals, and further aid for small businesses and tools to keep businesses open, will keep the economy growing.” NRF President Matthew Shay · “2020 was an unprecedented year for the U.S. toy industry. The growth we’ve seen in the toy industry speaks to the fact that parents are willing to put their children’s happiness above all else. The industry’s resiliency is very much underpinned by the reality that, in times of hardship, families look to toys to help keep their children engaged, active, and delighted. Put simply, toys are a big part of the happiness equation.” Juli Lennett - VP, U.S. Toys at NPD Toy sales were strong in 2020 as US retail sales of toys was up 16% vs 2019; driven by pandemic spending · According to NPD, “Much of the growth in 2020 was directly correlated to the COVID-19 pandemic and the changing consumer behavior associated with widespread lockdowns and school closures, the disposable income diverted from other types of entertainment to toys, as well as the onset of federal stimulus checks.” Consumer spending on toys increased measurably due to lockdowns; with strong performance continuing through the holidays · Per NPD, “While toy sales through mid-March 2020 were flat vs. 2019, widespread lockdown measures led to an abrupt increase in sales. This was further amplified by the distribution of stimulus checks beginning in April, resulting in the strongest month of growth for the year in May (+38%). Toy industry growth peaked again in October with an increase of 33% when the holiday season kicked off with Amazon Prime Day along with other retailer deals the same week.” Key retail sources reporting significant sales growth during Q4 2020 suggest Funko sales performance was strong · Target Q4 sales were fantastic showing signs of retail strength with a consumer that overlaps well with the Funko > Overall comparable sales were up 17.2% > Comparable digital sales were up over 100% > Store-originated comparable sales were up 4.2% > Store traffic was up 4.3% > Average ticket size was up 12.3% · GameStop Q4 sales were solid; showing additional potential for Funko sales > Same store sales were up 4.8% in Q4 2020 > Online sales increased 309% in Q4 2020 · According to the NRF, 2020 Holiday Retail Sales were up 8.3% compared to the prior year despite the pandemic > A surge in online shopping drove the increase (rising 32% vs. 2019) > The increase of 8.3% was over double the average increase of 3.5% that the industry had seen over the last five years. MORE DISPOSABLE INCOME TO SPEND AT HOME BY NOT GOING OUT The National Retail Federation (NRF) says that strong retail performance has been driven by consumers with stimulus checks and extra savings from not going out or traveling · “There was a massive boost to consumer wallets this season. Consumers were able to splurge on holiday gifts because of increased money in their bank accounts from the stimulus payments they received earlier in the year and the money they saved by not traveling, dining out, or attending entertainment events” – NRF Chief Economist Jack Kleinhenz. Spending on “experiences” fell significantly in 2020 · The US Travel Association forecasts that spending on travel fell $500 billion in 2020 from $1.1 trillion in 2019 > The industry has lost about 40% of its direct travel jobs (about 3.5 million jobs) in 2020; driven by a reduction in business travel > Foreign visitors to the US fell about 75% in 2020; driving a $119 billion reduction in travel spending · Concert spending is down dramatically > Live Nation reported a 98% decline in concert revenue in Q2 2020 and a 95% decline in concert revenue in Q3 2020 > About 5.2 million tickets were refunded in Q3 2020 and 23.3 million tickets had been refunded so far in 2020 (as of the end of Q3) · Movie theater attendance is down substantially > AMC theaters saw a 97% decline in attendance and a 91% decline in revenue in Q3 2020 > Cinemark saw a 96% decline in revenue > Marcus Corporation (which also owns hotels and restaurants) saw a 84% decline in revenue > Studio Movie Grill filed for bankruptcy · Other anecdotal information points to more stay-at-home activity decreasing recreational spending > Chuck E Cheese’s declared bankruptcy > Dave & Busters is considering bankruptcy and plans layoffs of +1,000 > CiCi’s Pizza declares bankruptcy > Starbucks saw fewer customers, reduced store hours, increased store closures, and a 5% decline in revenues in Q4 2020. This has led them to plan a shift to more “to-go” formats > Many Las Vegas Hotels and Casinos have decided to close “part-time” during the week due to lower attendance and travel. These include Encore, Rio, Linq, Planet Hollywood, Mandalay Bay, Park MGM, and Mirage The majority of food buffets at the major hotels and casinos have been shuttered for the time being Stimulus checks and other government programs to support consumer spending provide tailwinds for retail activity · The US government authorized more than $10,000 per person in stimulus spending in 2020 over the course of five relief bills totaling $3.5 trillion · More stimulus spending is expected; including a potential $1.9 trillion package that could include an additional $1,400 in stimulus checks MORE SKUS / LICENSES ARE GROWING AND EXPECTED TO CONINUE STRONG Active properties continue to rise and are expected to grow well into the future · The number of active properties in Q3 2020 grew 15% over 2019 · Active properties grew from 644 in Q2 to 715 in Q3 2020 · The potential universe for Funko Pops! is limitless as new films, tv shows, musicians, anime characters, sports stars, and other media properties are created every year. Some of the hot properties for this year and beyond · Star Wars: Baby Yoda, Mandalorian, Rey, Valentine’s Day, etc. · Marvel: WandaVision, Deadpool, Lucha Libre, Spiderman, Venom · Anime: Dragon Ball Z, Naruto, Bakugan, My Hero Academia · Films: Harry Potter, The Goonies, The Mummy, Fast & Furious · TV: The Office, Umbrella Academy, The Queen’s Gambit, The Simpsons · Sports: NFL, NBA, MLB, WWE · Others: Disney, Pokemon, etc. COLLECTIBLE INVESTMENTS ARE GROWING IN VALUE & POPULARITY · Funko: The average Pops! Figure has a retail price from between $10 and $15 which allows most people an affordable entry point into collecting. Over time some Pops! Figures increase substantially in price; from $50 to $100 to even several thousand dollars. While some collectors buy Pops! as primarily an investment, many more buy them as a way to show their fandom. Whether they are avid Star Wars, Harry Potter, Pokemon, Sports, or Anime fans; collectors build large collections and show them off to friends. · Sports Cards: To those paying attention, sports cards have been on a massive run with some cards worth more than your parent’s house and your sister’s car. Since the pandemic started, the demand for sports collectibles from basketball to football to soccer (and many others) has skyrocketed. Countless videos of box-breaks and pack openings have become the norm on social media. Some of these boxes are being purchased for tens of thousands with “hits” ranging from several hundred to hundreds of thousands. · Collector’s Universe: This company that grades sports cards and other collectibles has tripled in value since June 2020. The number of sports collectors grading cards has exploded as demand rises. The popularity of grading sports cards is expected to maintain as prices continue to rise and the hobby becomes more mainstream. ANALYST COMMENTARY AND FINANCIALS ARE A POSTIVE FOR THE STOCK Piper Sandler: Upgraded Funko from “Neutral” to “Overweight” (raising their price target from $6 to $12). · Analyst Erin Murphy sees evidence of “subsequent revenue pillars” with their recent launch of Snapsies at 800 Target stores; along with an expansion into board games and its digital efforts, which include a newly launched website in six European countries. Valuation Comparison: Market Cap / Revenue (TTM) · Funko: MC - $604 million / Rev - $640 million (0.9x sales) · Mattel: MC - $6.27 billion / Rev - $4.43 billion (1.4x sales) · Hasbro: MC - $13.13 billion / Rev - $5.17 billion (2.5x sales) Key Financial Trends For Funko · Q3 2020 EPS (Adjusted) = $0.31 > Third highest ever (only Q4 2018 & Q3 2019 were higher) · Q3 2020 Revenue = $191 million > Fourth highest ever (only Q4 2018, Q3 2019, and Q4 2019 were higher) · Q3 2020 Revenue increase vs prior quarter of 94% > Q1 and Q2 2020 saw significant declines due to COVID > Q3 2020 only down 14% vs Q3 2019 despite Q2 2020 being down 49% > Q3 2020 strength driven by Funko adapting quickly to online in the US market. (Q4 2020 revenue growth could be aided substantially by Funko’s development of their e-commerce shop in Europe.) · Q3 2020 SG&A was reduced 20% vs. the prior year as Funko rationalizes costs and adjusts to focus more on D2C e-commerce TL;DR After a tough summer, Funko sales have rocketed back in Q3 to near where they were pre-pandemic; setting up a potentially historic earnings for Q4 2020. Google search activity suggests that Funko is as popular as ever and is set up well for a strong year in 2021. People are spending less on “going out;” instead buying things to use at home and presents for their kids. As time passes, Funko’s status as a popular collectible only continues to gain momentum. Their direct sales initiative allows Funko to capture additional margin by sidestepping traditional brick and mortar retail to reach their customers. Investments in collectible products like Pops! and sports cards continue to increase in popularity and price. And the company continues to release even more products beyond Pops!; including games and apparel. While some Wall Street Analysts have already begun to take notice, a strong Q4 earnings announcement can drive even more attention to the stock. Positions: Long Shares & Calls Disclosure: I am long FNKO. This is not investment advice. I reserve the right to buy or sell FNKO without updating this thread. Do your own research and share (or not share) with the community in this thread. Thank you to the others on Reddit that shared this idea earlier. Feedback: If you have any additional information, ideas, or critiques please make sure to comment. It is great to get the perspective of others when making an investment. Also that information can be incorporated into future posts and updates. 2/9/21 Update: Additional info posted here
2/9/21 Update: Additional info posted here Funko is a good company with solid performance that is still trading at a reasonable price. Check out my DD below: Funko (FNKO) Share Price (02/01/21) : $12.90 Share Price (09/16/19) : $27.86 Short Interest (1/26/21) : 14% Next Earnings Release: March 2021 Funko Inc. is an American company that manufactures licensed pop culture collectibles, best known for its licensed vinyl figurines and bobbleheads. They have over 1,000 licenses across music, video games, film, TV, sports and many other pop culture properties. Some of their most popular licensed brands include Marvel, Disney, Star Wars, Pokemon, Fortnite, NBA, NFL, MLB, DC Comics, and a variety of anime properties. Several points below support the belief that Funko’s revenue grew during the 2020 holiday season and could continue well into 2021: · Increasing search traffic for Funko products · Direct sales growth is driving increased revenue and profitability · Parents are buying more gifts for their kids due to COVID · People have more disposable income from staying at home and not going out · Expansion of new products and licensees continuing through 2021 · Collectible investments like Funko POP! figures are exploding in value and popularity · Recent analyst commentary, valuation, and financials are positive FUNKO’S SEARCH TRAFFIC REACHES AN ALL-TIME HIGH IN Q4 2020 “Funko” google trends search traffic was up 20-30% in Q4 2020 (vs. Q4 2019) Searches for “Funko” were up 2x in December vs the beginning of November 2020 After falling in December, “Funko” searches are trending back up to all-time-high levels FUNKO’S DIRECT SALES INITIATIVES DRIVING HIGHER REVENUE & MARGIN Funko Direct Sales (B2C) grew significantly in Q3 and likely to continue into Q4 · B2C business as a percentage of sales increased to 8% in Q3 2020 from 4% during the prior year. · Funko’s e-commerce site grew over 150% vs. the prior year in Q3 2020 · The number of SKU’s on Funko’s e-commerce site rose tenfold since June 2020 “We went from only 200 of our own products [on our website] as late as June this year, to now well over 2,000 products available on our website.” – Funko CEO, Brian Mariotti Funko’s first ever Selena Pop! sold out online in just 40 minutes. Funko’s Q3 2020 Gross Profit % and Operating Margin % were near all-time-highs for the company · Funko’s Q3 Gross Profit Percentage of 38.6% was its second highest ever (behind only Q1 2020) · Funko’s Q3 Operating Profit Percentage of 10.8% was its second highest ever (behind only Q4 2018) · As Funko continues to grow it’s B2C e-commerce sales in Q4 and beyond, it is possible that gross profit and operating profit percentages could rise as well Retail customers were able to shift their Brick & Mortar inventory to their e-commerce channels to Funko unit sales · Funko resellers who didn’t sell online were severely impacted by Brick & Mortar closures during COVID stay-at-home orders. As 2020 progressed, some of these retailers were able to create online stores (e.g.- Shopify, Amazon, eBay, etc.) through which they could sell their Funko inventory. · Larger retailers that already had an omni-channel presence were able to shift their sales inventory from their Brick & Mortar stores to online fulfilment. Funko has also created a mini-Pop! factory at its headquarters where customers can make their own custom Funko at a price of $25 each · According to Funko, you can customize your Pop! using thousands of combinations. It’s “Think Build-A-Bear meets Funko Pop!” according to CEO Brian Mariotti. · With a $25 price point, the margins are likely higher than the average Pop! figure that retails for between $10 to $15 PARENTS BUYING MORE GIFTS FOR THEIR KIDS DUE TO COVID Parents likely splurged on their kids out of guilt of having shelter at home because of restrictions and to keep them occupied while they had to work at home. · “Faced with rising transmission of the virus, state restrictions on retailers and heightened political and economic uncertainty, consumers chose to spend on gifts that lifted the spirits of their families and friends and provided a sense of normalcy given the challenging year. We believe President-elect Biden’s stimulus proposal, with direct payments to families and individuals, and further aid for small businesses and tools to keep businesses open, will keep the economy growing.” NRF President Matthew Shay · “2020 was an unprecedented year for the U.S. toy industry. The growth we’ve seen in the toy industry speaks to the fact that parents are willing to put their children’s happiness above all else. The industry’s resiliency is very much underpinned by the reality that, in times of hardship, families look to toys to help keep their children engaged, active, and delighted. Put simply, toys are a big part of the happiness equation.” Juli Lennett - VP, U.S. Toys at NPD Toy sales were strong in 2020 as US retail sales of toys was up 16% vs 2019; driven by pandemic spending · According to NPD, “Much of the growth in 2020 was directly correlated to the COVID-19 pandemic and the changing consumer behavior associated with widespread lockdowns and school closures, the disposable income diverted from other types of entertainment to toys, as well as the onset of federal stimulus checks.” Consumer spending on toys increased measurably due to lockdowns; with strong performance continuing through the holidays · Per NPD, “While toy sales through mid-March 2020 were flat vs. 2019, widespread lockdown measures led to an abrupt increase in sales. This was further amplified by the distribution of stimulus checks beginning in April, resulting in the strongest month of growth for the year in May (+38%). Toy industry growth peaked again in October with an increase of 33% when the holiday season kicked off with Amazon Prime Day along with other retailer deals the same week.” Key retail sources reporting significant sales growth during Q4 2020 suggest Funko sales performance was strong · Target Q4 sales were fantastic showing signs of retail strength with a consumer that overlaps well with the Funko > Overall comparable sales were up 17.2% > Comparable digital sales were up over 100% > Store-originated comparable sales were up 4.2% > Store traffic was up 4.3% > Average ticket size was up 12.3% · GameStop Q4 sales were solid; showing additional potential for Funko sales > Same store sales were up 4.8% in Q4 2020 > Online sales increased 309% in Q4 2020 · According to the NRF, 2020 Holiday Retail Sales were up 8.3% compared to the prior year despite the pandemic > A surge in online shopping drove the increase (rising 32% vs. 2019) > The increase of 8.3% was over double the average increase of 3.5% that the industry had seen over the last five years. MORE DISPOSABLE INCOME TO SPEND AT HOME BY NOT GOING OUT The National Retail Federation (NRF) says that strong retail performance has been driven by consumers with stimulus checks and extra savings from not going out or traveling · “There was a massive boost to consumer wallets this season. Consumers were able to splurge on holiday gifts because of increased money in their bank accounts from the stimulus payments they received earlier in the year and the money they saved by not traveling, dining out, or attending entertainment events” – NRF Chief Economist Jack Kleinhenz. Spending on “experiences” fell significantly in 2020 · The US Travel Association forecasts that spending on travel fell $500 billion in 2020 from $1.1 trillion in 2019 > The industry has lost about 40% of its direct travel jobs (about 3.5 million jobs) in 2020; driven by a reduction in business travel > Foreign visitors to the US fell about 75% in 2020; driving a $119 billion reduction in travel spending · Concert spending is down dramatically > Live Nation reported a 98% decline in concert revenue in Q2 2020 and a 95% decline in concert revenue in Q3 2020 > About 5.2 million tickets were refunded in Q3 2020 and 23.3 million tickets had been refunded so far in 2020 (as of the end of Q3) · Movie theater attendance is down substantially > AMC theaters saw a 97% decline in attendance and a 91% decline in revenue in Q3 2020 > Cinemark saw a 96% decline in revenue > Marcus Corporation (which also owns hotels and restaurants) saw a 84% decline in revenue > Studio Movie Grill filed for bankruptcy · Other anecdotal information points to more stay-at-home activity decreasing recreational spending > Chuck E Cheese’s declared bankruptcy > Dave & Busters is considering bankruptcy and plans layoffs of +1,000 > CiCi’s Pizza declares bankruptcy > Starbucks saw fewer customers, reduced store hours, increased store closures, and a 5% decline in revenues in Q4 2020. This has led them to plan a shift to more “to-go” formats > Many Las Vegas Hotels and Casinos have decided to close “part-time” during the week due to lower attendance and travel. These include Encore, Rio, Linq, Planet Hollywood, Mandalay Bay, Park MGM, and Mirage The majority of food buffets at the major hotels and casinos have been shuttered for the time being Stimulus checks and other government programs to support consumer spending provide tailwinds for retail activity · The US government authorized more than $10,000 per person in stimulus spending in 2020 over the course of five relief bills totaling $3.5 trillion · More stimulus spending is expected; including a potential $1.9 trillion package that could include an additional $1,400 in stimulus checks MORE SKUS / LICENSES ARE GROWING AND EXPECTED TO CONINUE STRONG Active properties continue to rise and are expected to grow well into the future · The number of active properties in Q3 2020 grew 15% over 2019 · Active properties grew from 644 in Q2 to 715 in Q3 2020 · The potential universe for Funko Pops! is limitless as new films, tv shows, musicians, anime characters, sports stars, and other media properties are created every year. Some of the hot properties for this year and beyond · Star Wars: Baby Yoda, Mandalorian, Rey, Valentine’s Day, etc. · Marvel: WandaVision, Deadpool, Lucha Libre, Spiderman, Venom · Anime: Dragon Ball Z, Naruto, Bakugan, My Hero Academia · Films: Harry Potter, The Goonies, The Mummy, Fast & Furious · TV: The Office, Umbrella Academy, The Queen’s Gambit, The Simpsons · Sports: NFL, NBA, MLB, WWE · Others: Disney, Pokemon, etc. Retail exclusives can grow the potential universe of licenses and increase retailer buy-in · For example: A retailer like GameStop could lobby Funko to make a GameStop exclusive of the WallStreetBets Kid like this person suggested here. (The exclusive Pop! would be made into a limited edition and sold only to GameStop to sell at their stores) COLLECTIBLE INVESTMENTS ARE GROWING IN VALUE & POPULARITY · Funko: The average Pops! Figure has a retail price from between $10 and $15 which allows most people an affordable entry point into collecting. Over time some Pops! Figures increase substantially in price; from $50 to $100 to even several thousand dollars. While some collectors buy Pops! as primarily an investment, many more buy them as a way to show their fandom. Whether they are avid Star Wars, Harry Potter, Pokemon, Sports, or Anime fans; collectors build large collections and show them off to friends. · Sports Cards: To those paying attention, sports cards have been on a massive run with some cards worth more than your parent’s house and your sister’s car. Since the pandemic started, the demand for sports collectibles from basketball to football to soccer (and many others) has skyrocketed. Countless videos of box-breaks and pack openings have become the norm on social media. Some of these boxes are being purchased for tens of thousands with “hits” ranging from several hundred to hundreds of thousands. · Collector’s Universe: This company that grades sports cards and other collectibles has tripled in value since June 2020. The number of sports collectors grading cards has exploded as demand rises. The popularity of grading sports cards is expected to maintain as prices continue to rise and the hobby becomes more mainstream. ANALYST COMMENTARY AND FINANCIALS ARE A POSTIVE FOR THE STOCK Piper Sandler: Upgraded Funko from “Neutral” to “Overweight” (raising their price target from $6 to $12). · Analyst Erin Murphy sees evidence of “subsequent revenue pillars” with their recent launch of Snapsies at 800 Target stores; along with an expansion into board games and its digital efforts, which include a newly launched website in six European countries. Valuation Comparison: Market Cap / Revenue (TTM) · Funko: MC - $604 million / Rev - $640 million (0.9x sales) · Mattel: MC - $6.27 billion / Rev - $4.43 billion (1.4x sales) · Hasbro: MC - $13.13 billion / Rev - $5.17 billion (2.5x sales) Key Financial Trends For Funko · Q3 2020 EPS (Adjusted) = $0.31 > Third highest ever (only Q4 2018 & Q3 2019 were higher) · Q3 2020 Revenue = $191 million > Fourth highest ever (only Q4 2018, Q3 2019, and Q4 2019 were higher) · Q3 2020 Revenue increase vs prior quarter of 94% > Q1 and Q2 2020 saw significant declines due to COVID > Q3 2020 only down 14% vs Q3 2019 despite Q2 2020 being down 49% > Q3 2020 strength driven by Funko adapting quickly to online in the US market. (Q4 2020 revenue growth could be aided substantially by Funko’s development of their e-commerce shop in Europe.) · Q3 2020 SG&A was reduced 20% vs. the prior year as Funko rationalizes costs and adjusts to focus more on D2C e-commerce TL;DR After a tough summer, Funko sales have rocketed back in Q3 to near where they were pre-pandemic; setting up a potentially historic earnings for Q4 2020. Google search activity suggests that Funko is as popular as ever and is set up well for a strong year in 2021. People are spending less on “going out;” instead buying things to use at home and presents for their kids. As time passes, Funko’s status as a popular collectible only continues to gain momentum. Their direct sales initiative allows Funko to capture additional margin by sidestepping traditional brick and mortar retail to reach their customers. Investments in collectible products like Pops! and sports cards continue to increase in popularity and price. And the company continues to release even more products beyond Pops!; including games and apparel. While some Wall Street Analysts have already begun to take notice, a strong Q4 earnings announcement can drive even more attention to the stock. Positions: Long Shares & Calls Disclosure: I am long FNKO. This is not investment advice. I reserve the right to buy or sell FNKO without updating this thread. Do your own research and share (or not share) with the community in this thread. Thank you to the others on Reddit that shared this idea earlier. Feedback: If you have any additional information, ideas, or critiques please make sure to comment. It is great to get the perspective of others when making an investment. Also that information can be incorporated into future posts and updates. Previous DD:Herman Miller
2/9/21 Update: Additional info posted here Hi everyone. Funko is a great stock that I believe will do well this year. Internet search traffic for Funko has been increasing and is at all-time highs over the last couple of months. The company is selling more of their toys directly to customers through their e-commerce shop (which allows them to capture higher retail revenues than wholesale revenues). And demand for collectibles and toys continues to be strong. Here is a DD I wrote on the company below. I would love to get your thoughts. Funko (FNKO) Share Price (1/28/21) : $11.97 Share Price (09/16/19) : $27.86 Short Interest (1/26/21) : 14% Next Earnings Release: March 2021 Funko Inc. is an American company that manufactures licensed pop culture collectibles, best known for its licensed vinyl figurines and bobbleheads. They have over 1,000 licenses across music, video games, film, TV, sports and many other pop culture properties. Some of their most popular licensed brands include Marvel, Disney, Star Wars, Pokemon, Fortnite, NBA, NFL, MLB, DC Comics, and a variety of anime properties. Several points below support the belief that Funko’s revenue grew during the 2020 holiday season and could continue well into 2021: · Increasing search traffic for Funko products · Direct sales growth is driving increased revenue and profitability · Parents are buying more gifts for their kids due to COVID · People have more disposable income from staying at home and not going out · Expansion of new products and licensees continuing through 2021 · Collectible investments like Funko POP! figures are exploding in value and popularity · Recent analyst commentary, valuation, and financials are positive FUNKO’S SEARCH TRAFFIC REACHES AN ALL-TIME HIGH IN Q4 2020 “Funko” google trends search traffic was up 20-30% in Q4 2020 (vs. Q4 2019) Searches for “Funko” were up 2x in December vs the beginning of November 2020 After falling in December, “Funko” searches are trending back up to all-time-high levels FUNKO’S DIRECT SALES INITIATIVES DRIVING HIGHER REVENUE & MARGIN Funko Direct Sales (B2C) grew significantly in Q3 and likely to continue into Q4 · B2C business as a percentage of sales increased to 8% in Q3 2020 from 4% during the prior year. · Funko’s e-commerce site grew over 150% vs. the prior year in Q3 2020 · The number of SKU’s on Funko’s e-commerce site rose tenfold since June 2020 “We went from only 200 of our own products [on our website] as late as June this year, to now well over 2,000 products available on our website.” – Funko CEO, Brian Mariotti Funko’s first ever Selena Pop! sold out online in just 40 minutes. Funko’s Q3 2020 Gross Profit % and Operating Margin % were near all-time-highs for the company · Funko’s Q3 Gross Profit Percentage of 38.6% was its second highest ever (behind only Q1 2020) · Funko’s Q3 Operating Profit Percentage of 10.8% was its second highest ever (behind only Q4 2018) · As Funko continues to grow it’s B2C e-commerce sales in Q4 and beyond, it is possible that gross profit and operating profit percentages could rise as well Retail customers were able to shift their Brick & Mortar inventory to their e-commerce channels to Funko unit sales · Funko resellers who didn’t sell online were severely impacted by Brick & Mortar closures during COVID stay-at-home orders. As 2020 progressed, some of these retailers were able to create online stores (e.g.- Shopify, Amazon, eBay, etc.) through which they could sell their Funko inventory. · Larger retailers that already had an omni-channel presence were able to shift their sales inventory from their Brick & Mortar stores to online fulfilment. Funko has also created a mini-Pop! factory at its headquarters where customers can make their own custom Funko at a price of $25 each · According to Funko, you can customize your Pop! using thousands of combinations. It’s “Think Build-A-Bear meets Funko Pop!” according to CEO Brian Mariotti. · With a $25 price point, the margins are likely higher than the average Pop! figure that retails for between $10 to $15 PARENTS BUYING MORE GIFTS FOR THEIR KIDS DUE TO COVID Parents likely splurged on their kids out of guilt of having shelter at home because of restrictions and to keep them occupied while they had to work at home. · “Faced with rising transmission of the virus, state restrictions on retailers and heightened political and economic uncertainty, consumers chose to spend on gifts that lifted the spirits of their families and friends and provided a sense of normalcy given the challenging year. We believe President-elect Biden’s stimulus proposal, with direct payments to families and individuals, and further aid for small businesses and tools to keep businesses open, will keep the economy growing.” NRF President Matthew Shay · “2020 was an unprecedented year for the U.S. toy industry. The growth we’ve seen in the toy industry speaks to the fact that parents are willing to put their children’s happiness above all else. The industry’s resiliency is very much underpinned by the reality that, in times of hardship, families look to toys to help keep their children engaged, active, and delighted. Put simply, toys are a big part of the happiness equation.” Juli Lennett - VP, U.S. Toys at NPD Toy sales were strong in 2020 as US retail sales of toys was up 16% vs 2019; driven by pandemic spending · According to NPD, “Much of the growth in 2020 was directly correlated to the COVID-19 pandemic and the changing consumer behavior associated with widespread lockdowns and school closures, the disposable income diverted from other types of entertainment to toys, as well as the onset of federal stimulus checks.” Consumer spending on toys increased measurably due to lockdowns; with strong performance continuing through the holidays · Per NPD, “While toy sales through mid-March 2020 were flat vs. 2019, widespread lockdown measures led to an abrupt increase in sales. This was further amplified by the distribution of stimulus checks beginning in April, resulting in the strongest month of growth for the year in May (+38%). Toy industry growth peaked again in October with an increase of 33% when the holiday season kicked off with Amazon Prime Day along with other retailer deals the same week.” Key retail sources reporting significant sales growth during Q4 2020 suggest Funko sales performance was strong · Target Q4 sales were fantastic showing signs of retail strength with a consumer that overlaps well with the Funko > Overall comparable sales were up 17.2% > Comparable digital sales were up over 100% > Store-originated comparable sales were up 4.2% > Store traffic was up 4.3% > Average ticket size was up 12.3% · GameStop Q4 sales were solid; showing additional potential for Funko sales > Same store sales were up 4.8% in Q4 2020 > Online sales increased 309% in Q4 2020 · According to the NRF, 2020 Holiday Retail Sales were up 8.3% compared to the prior year despite the pandemic > A surge in online shopping drove the increase (rising 32% vs. 2019) > The increase of 8.3% was over double the average increase of 3.5% that the industry had seen over the last five years. MORE DISPOSABLE INCOME TO SPEND AT HOME BY NOT GOING OUT The National Retail Federation (NRF) says that strong retail performance has been driven by consumers with stimulus checks and extra savings from not going out or traveling · “There was a massive boost to consumer wallets this season. Consumers were able to splurge on holiday gifts because of increased money in their bank accounts from the stimulus payments they received earlier in the year and the money they saved by not traveling, dining out, or attending entertainment events” – NRF Chief Economist Jack Kleinhenz. Spending on “experiences” fell significantly in 2020 · The US Travel Association forecasts that spending on travel fell $500 billion in 2020 from $1.1 trillion in 2019 > The industry has lost about 40% of its direct travel jobs (about 3.5 million jobs) in 2020; driven by a reduction in business travel > Foreign visitors to the US fell about 75% in 2020; driving a $119 billion reduction in travel spending · Concert spending is down dramatically > Live Nation reported a 98% decline in concert revenue in Q2 2020 and a 95% decline in concert revenue in Q3 2020 > About 5.2 million tickets were refunded in Q3 2020 and 23.3 million tickets had been refunded so far in 2020 (as of the end of Q3) · Movie theater attendance is down substantially > AMC theaters saw a 97% decline in attendance and a 91% decline in revenue in Q3 2020 > Cinemark saw a 96% decline in revenue > Marcus Corporation (which also owns hotels and restaurants) saw a 84% decline in revenue > Studio Movie Grill filed for bankruptcy · Other anecdotal information points to more stay-at-home activity decreasing recreational spending > Chuck E Cheese’s declared bankruptcy > Dave & Busters is considering bankruptcy and plans layoffs of +1,000 > CiCi’s Pizza declares bankruptcy > Starbucks saw fewer customers, reduced store hours, increased store closures, and a 5% decline in revenues in Q4 2020. This has led them to plan a shift to more “to-go” formats > Many Las Vegas Hotels and Casinos have decided to close “part-time” during the week due to lower attendance and travel. These include Encore, Rio, Linq, Planet Hollywood, Mandalay Bay, Park MGM, and Mirage The majority of food buffets at the major hotels and casinos have been shuttered for the time being Stimulus checks and other government programs to support consumer spending provide tailwinds for retail activity · The US government authorized more than $10,000 per person in stimulus spending in 2020 over the course of five relief bills totaling $3.5 trillion · More stimulus spending is expected; including a potential $1.9 trillion package that could include an additional $1,400 in stimulus checks MORE SKUS / LICENSES ARE GROWING AND EXPECTED TO CONINUE STRONG Active properties continue to rise and are expected to grow well into the future · The number of active properties in Q3 2020 grew 15% over 2019 · Active properties grew from 644 in Q2 to 715 in Q3 2020 · The potential universe for Funko Pops! is limitless as new films, tv shows, musicians, anime characters, sports stars, and other media properties are created every year. Some of the hot properties for this year and beyond · Star Wars: Baby Yoda, Mandalorian, Rey, Valentine’s Day, etc. · Marvel: WandaVision, Deadpool, Lucha Libre, Spiderman, Venom · Anime: Dragon Ball Z, Naruto, Bakugan, My Hero Academia · Films: Harry Potter, The Goonies, The Mummy, Fast & Furious · TV: The Office, Umbrella Academy, The Queen’s Gambit, The Simpsons · Sports: NFL, NBA, MLB, WWE · Others: Disney, Pokemon, etc. COLLECTIBLE INVESTMENTS ARE GROWING IN VALUE & POPULARITY · Funko: The average Pops! Figure has a retail price from between $10 and $15 which allows most people an affordable entry point into collecting. Over time some Pops! Figures increase substantially in price; from $50 to $100 to even several thousand dollars. While some collectors buy Pops! as primarily an investment, many more buy them as a way to show their fandom. Whether they are avid Star Wars, Harry Potter, Pokemon, Sports, or Anime fans; collectors build large collections and show them off to friends. · Sports Cards: To those paying attention, sports cards have been on a massive run with some cards worth more than your parent’s house and your sister’s car. Since the pandemic started, the demand for sports collectibles from basketball to football to soccer (and many others) has skyrocketed. Countless videos of box-breaks and pack openings have become the norm on social media. Some of these boxes are being purchased for tens of thousands with “hits” ranging from several hundred to hundreds of thousands. · Collector’s Universe: This company that grades sports cards and other collectibles has tripled in value since June 2020. The number of sports collectors grading cards has exploded as demand rises. The popularity of grading sports cards is expected to maintain as prices continue to rise and the hobby becomes more mainstream. ANALYST COMMENTARY AND FINANCIALS ARE A POSTIVE FOR THE STOCK Piper Sandler: Upgraded Funko from “Neutral” to “Overweight” (raising their price target from $6 to $12). · Analyst Erin Murphy sees evidence of “subsequent revenue pillars” with their recent launch of Snapsies at 800 Target stores; along with an expansion into board games and its digital efforts, which include a newly launched website in six European countries. Valuation Comparison: Market Cap / Revenue (TTM) · Funko: MC - $604 million / Rev - $640 million (0.9x sales) · Mattel: MC - $6.27 billion / Rev - $4.43 billion (1.4x sales) · Hasbro: MC - $13.13 billion / Rev - $5.17 billion (2.5x sales) Key Financial Trends For Funko · Q3 2020 EPS (Adjusted) = $0.31 > Third highest ever (only Q4 2018 & Q3 2019 were higher) · Q3 2020 Revenue = $191 million > Fourth highest ever (only Q4 2018, Q3 2019, and Q4 2019 were higher) · Q3 2020 Revenue increase vs prior quarter of 94% > Q1 and Q2 2020 saw significant declines due to COVID > Q3 2020 only down 14% vs Q3 2019 despite Q2 2020 being down 49% > Q3 2020 strength driven by Funko adapting quickly to online in the US market. (Q4 2020 revenue growth could be aided substantially by Funko’s development of their e-commerce shop in Europe.) · Q3 2020 SG&A was reduced 20% vs. the prior year as Funko rationalizes costs and adjusts to focus more on D2C e-commerce TL;DR After a tough summer, Funko sales have rocketed back in Q3 to near where they were pre-pandemic; setting up a potentially historic earnings for Q4 2020. Google search activity suggests that Funko is as popular as ever and is set up well for a strong year in 2021. People are spending less on “going out;” instead buying things to use at home and presents for their kids. As time passes, Funko’s status as a popular collectible only continues to gain momentum. Their direct sales initiative allows Funko to capture additional margin by sidestepping traditional brick and mortar retail to reach their customers. Investments in collectible products like Pops! and sports cards continue to increase in popularity and price. And the company continues to release even more products beyond Pops!; including games and apparel. While some Wall Street Analysts have already begun to take notice, a strong Q4 earnings announcement can drive even more attention to the stock. Positions: Long Shares & Calls Disclosure: I am long FNKO. This is not investment advice. I reserve the right to buy or sell FNKO without updating this thread. Do your own research and share (or not share) with the community in this thread. Thank you to the others on Reddit that shared this idea earlier. Feedback: If you have any additional information, ideas, or critiques please make sure to comment. It is great to get the perspective of others when making an investment. Also that information can be incorporated into future posts and updates.
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