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Why Funko, Inc. Stock Dropped 21% Today

By Rich Smith – Nov 9, 2018 at 7:11PM

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Investors got no joy from Funko's earnings.

What happened

Toymaker Funko (FNKO 1.61%) didn't bring much joy to its investors Friday. Despite Funko reporting earnings that easily outdistanced what Wall Street had predicted, investors sold off the stock, which closed down 21.5% for the day.

Profits for Funko's fiscal third quarter came in a nickel ahead of estimates at $0.27 per diluted share. Sales for the quarter likewise exceeded expectations, with Funko reporting $176.9 million in quarterly sales versus the $166 million that were predicted.

Cartoon characters shocked at a falling stock chart

Despite beating earnings and raising estimates, Funko stock just crashed. Image source: Getty Images.

So what

So why weren't investors happier with the results? For one thing, although Funko succeeded in growing its sales 24% year over year, a big decline of 250 basis points in gross profit margin, plus rising selling, general, and administrative costs, prevented profits from growing at all.

In fact, Funko's net income declined 2% year over year. Although it beat earnings, that result had to come as a disappointment.

Now what

Despite these obstacles, Funko raised guidance for the rest of 2018, predicting it will end this year with sales of anywhere from $645 million to $650 million and "adjusted Pro Forma EPS" (earnings per share) of from $0.68 to $0.73. Furthermore, Funko noted that it believes 2019 will "be a banner year for pop culture content" toys, such as those Funko specializes in.

There's no estimate for what a "banner year" works out to in terms of dollars and cents just yet -- but with luck, Funko will quantify that for us when it reports Q4 earnings, three months from now.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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