Pop-culture consumer-products company Funko's (FNKO 1.98%) motto is "Everyone is a collector of something," and boy, are they right.
Funko is perhaps most widely known for its highly stylized collectible plastic figurines, called Pops. The company owns more than 1,000 licenses featuring everything from Fortnite characters and sports figures to the stars of The Golden Girls and Teletubbies. Almost half of Funko Pop sales come from Star Wars, Harry Potter, and Disney characters.
Source: Funko
"Our brand identity is to be able to say that we have something for literally everybody," says Dolly Ahluwalia, Funko's VP of licensing and business development. "We're in a world right now where there is a lot of nostalgia at play — people have a lot of affinity for brands and shows from the '80s and '90s."
Funko Pops, available in 25,000 retail locations from Target to Amazon, are taking the market by storm. Prices range from $15 for most newer Pops to a recent $6,000 for a collector Pop.
A dynamic approach to the toy market
Other product lines extend to plush toys, electronic games, apparel, housewares, and now makeup.
"Makeup?" you may ask. Yes, it's true. Funko stepped out of its comfort zone by introducing a cosmetics line based on four iconic Disney villians -- Ursula, Maleficent, Cruella de Vil, and the Evil Queen from Snow White. The offerings are meant as add-on purchases leveraging the lucrative Disney licensing deal, joining Funko's popular Disney-themed handbags and backpacks.
"Our Funko Pop and Disney cosmetics collection based on the Disney villain franchise is another whimsical way for fans, collectors, and beauty aficionados to wear, travel with, and display their fandom," said Molly Hartney, Funko's chief marketing officer. And for its part, Disney sees this as a fun way for its most glamorous villains to continue their move out of the mysterious gloom and into the spotlight.
If the Disney-villain makeup line is successful, products leveraging other properties (such as Star Wars or SpongeBob SquarePants) are likely. Funko has so many licenses that it can pivot in any number of directions for new product inspiration.
And new products are key to ensuring Funko's future. Right now, the Pops vinyl figurines are capturing imaginations and dominating sales, but that may not always be the case. (Think about Beanie Babies, Pokemon cards, and Cabbage Patch dolls.)
Consumer tastes are fickle. Funko has been successful at staying ahead of its customers, anticipating what will be hot next and in what form fandom will be expressed. It's vital that the company remains nimble and creative.
Financials impressed in the second quarter
The company's Q2 earnings report, released in August, revealed sales of $191.5 million, with year-over-year sales growth of 38%. Net income grew to $11.4 million from $0.3 million, and figurine sales continued to drive growth.
Funko is on a roll, and management increased their full-year 2019 guidance. Wall Street has revised expectations for Funko's net income upward by about 9.5%, as well.
The current price per Funko share is $19.55. Several Wall Street analysts are bullish, but there are naysayers as well. The Fool's own Rick Munarriz advises staying away from Funko stock in the near term. His reasoning is that large revenue increases are hard to come by if a fad's time passes -- and the vinyl figurines so vital to Funko's sales could easily be a passing fad.
There are risks with investing in any consumer-products company that relies on fashion and imagination, and these must always be considered. In my mind, the risks associated with Funko stock aren't any bigger than those that accompany other toy companies.
I'm bullish on Funko thanks to its huge library of licenses and proven ability to get concepts to market quickly -- some products have been licensed and brought to market in as little as 70 days, with development costs between $5,000 and $7,500. Consumer demand has been demonstrated to be growing, too.
I think there is more upside to Funko's stock price from here -- perhaps even a pop (sorry). Interested investors should be comfortable considering it for two to five years and beyond.
