What happened

Shares of Funko (NASDAQ:FNKO) dipped 20.3% in November, according to data provided by S&P Global Market Intelligence. The pop-culture merchandiser's stock continued to cool off last month despite third-quarter results that came in ahead of the market's expectations, and an increased full-year earnings target.

FNKO Chart

FNKO data by YCharts.

Funko reported third-quarter results on Nov. 8, beating the average analyst estimates for sales and earnings. Revenue for the quarter climbed 24% year over year to reach $176.9 million and top the average analyst estimate's call for sales of $166 million. Earnings per share for the period arrived at $0.27, beating the average analyst estimate by $0.05. But declining profits and gross margins versus the prior-year period sent the stock tumbling.

An Aladdin Funko Pop! figurine.

A fad or a pillar for the future? Image source: Funko.

So what

Funko's third-quarter gross profit margin fell 250 basis points compared with the prior-year period to land at 38.4%, with the decline stemming from a reduced average sales price in the European market. Net income for the period dipped 2% year over year to $8.1 million. Still, Funko stock has more than doubled this year thanks to strong sales growth and momentum for the broader pop-culture merchandise market. But profit erosion appears to have spooked investors, and questions remain about whether the company's popular figurines will prove to be a sustainable business pillar or just a fad. 

Now what

Funko stock has continued to lose ground in December, trading down roughly 5.6% in the month so far.

FNKO Chart

FNKO data by YCharts

The company now expects full-year net income of $25.5 million, up from its previous target of $22.6 million. Funko is valued at roughly 27 times its new net income target. 

Keith Noonan 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.