Please ensure Javascript is enabled for purposes of website accessibility

Why Funko, Inc. Stock Dropped 21% Today

By Rich Smith – Nov 9, 2018 at 7:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Funko, Inc. Stock Quote
Funko, Inc.
FNKO
$20.22 (1.61%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.