Funko Watch: 3 Months Later...Is it still worth it?
On November 10th, 2017, Region 99 reported on Funko, its IPO (Initial Public Offering) and we mentioned that the Law offices of Kirby McInerney, LLC launched an investigation into their funhouse practices….
Well, we decided to wait for a suitable amount of time (November 2017 to January 20th 2018) due to people stating that we should ‘give the company a chance' to analyze them. So we waited... and waited... and now, 3 months later, we feel that our analysis on the company warrants attention to the sellers, traders, and collectors.
Ladies and Gentlemen, we now provide you with our take on the company for 2018 and answer the question some of you may still be asking;
Should I still invest in Funko?
Since its IPO, Funko (NASDAQ:FNKO) has experienced a series of wins, struggles, achievements and setbacks.
Funko is becoming a household name in the pop culture industry and they are also branching out to additional ‘pop culture’ markets such as the accessories and media market. Funko recently acquired the contemporary fashion accessory company Loungefly in early May 2017. For those who are not familiar with the company; Loungefly specializes in trendy licensed pop culture accessories such as clothing, bookbags, wallets, purses, etc. Similar to other retail stores such as Hot Topic, Against All Odds, etc., Loungefly is geared towards trendy hip nerds with prices to match.
Funko in December 2017 developed a partnership with PEZ Candy, Inc. Since 1927, PEZ candy has been called ‘interactive candy’, with their famed collectible head candy dispensers. To date, PEZ distributes 70 million candy dispensers and 5 Billion candies per year. For Funko, with this partnership they will be able to create a line of PEZ dispensers with FUNKO POP shaped heads and distinct designs.
Also in December 2017 Funko acquired the award winning animation production company, A Large Evil Corporation a.k.a. Evil Corp. Evil Corp specializes in the creation of short animated films and commercials will now be doing a series of animated shorts for the Funko brand. If you are unable to grasp the concept, its basically similar to what LEGO is already doing with their DC licenses, creating movies and animated shorts.
As though it couldn’t get any better, they are now launching new initiatives to sell their brand exclusively to Target stores. This is really nothing new as collectors usually go to other retail outlets to acquire different varieties of a Pop figure, but this time its different. Dubbing the new series ‘HeroWorld’, these semi-detailed figures are 4” stand alone vinyl figures and come in a set of 2- 5 figures. These figures look similar to the toys you get in the Kids’ Happy Meals at McDonalds, but the only difference is that it says Funko on it.
The mounting investigations continue as more law offices are trying to obtain and sway people who may have been robbed of their savings. Following in the wake of Kirby McInerney, LLC, the law offices of Farauqi and Faruqi, LLP; Levi and Korsinsky, LLP and the law offices of Howard G. Smith are encouraging investors who have suffered from losses between $10,000 to greater than $50,000 to step up and contact them. For some readers, this may be seen as a ploy to get people to sue the company, for others, for those that lost a substantial amount of money, this is a call to get some of their money back. As of this writing, tensions are still mounting as people and investors are wondering when the stock will rise. For some, predictions are stating that within 12 months, the stock could go as high as $16.00 or as low as $7.50. Whatever the case, the stock needs to start rewarding its investors and grow.
In addition to the alleged lawsuits, the mounting leftover merchandise continues as retailers are offering steep discounts to clear some of their old inventory. FYE in Clifton, NJ for example is offering a buy 1 get one free on their Funko mini key chains. For the popular Funko Pops, they are still regularly priced and follow the buy two, get one 75% off mantra, but for older models, prices are ranging from $2.99 to $5.99. Other retailers, such as Toys “R” US, which just filed for bankruptcy in September, are buying less inventory and are shipping their products from one store to another in hopes of unloading their stock in multiple regions.
Achievements followed by Setbacks….
Funko is making money as a whole, but the Funko stock just can’t seem to get above $15 dollars a share. Currently the stock has been taking us on a roller coaster ride where we’ve seen some highs and some astonishing lows. As far as the debt is concerned, it seems the company is paying down on it through the many investors buying the stock and through the sales of their products. Additionally, as the company has seen monetary increases in their performance for the 2017 third quarter, their acquisitions of new companies, followed by their increases in licenses are still costing them money. Economic performance has gone up for the company, but there is the looming fear that the Funko brand could go out of style.
Possible Solutions for Funko
Although Funko is growing structurally and financially, they may be scaling too much, too soon. The foundation of their whole organization is through their licensing and the multiple designs in which they create these products. From anime, T.V., movies and comics, they are well on their way to becoming a powerhouse in the collectible industry, but they need to find ways to cut costs and maximize profits. Some ways to cut costs would be by reaching out to the custom creators, cut badly made merchandise and offer incentives for the fans to guarantee continued brand loyalty.
Custom ‘Funko’ Designers
There are multiple ‘indie’ illustrators, graphic designers, and toy designers. Funko could offer freelance licensing deals to them and use their ideas to create original products for the brand. This low cost solution would welcome an influx of new ideas at reasonable prices. Because every freelance licensing deal would vary, it would be based on the contribution of the artist. Currently on Instagram there are a series of ‘custom designers’ who would love the opportunity to showcase their work for the Brand. For example, on Instagram; ‘Funkoboss’ has amassed approximately 94,000 followers and his custom Pops are amazing. Although funkoboss has their own following, imagine the royalties amassed from both parties when their ideas and creations come into the retail arena.
Indie Comic Scene
Currently 'indie' comic book artists, illustrators, and designers are creating their own super-heroes and villains and Funko could assist in promoting them by creating Pops for them. By creating innovative licensing deals within the indie comic market, it is possible the brand could tap into a brand new market and create new avenues to solidify their hold on the collectable market industry by making the 'indie' characters limited editions. For example, on Instagram, visual artist ‘Marcusthevisual’ (named Marcus The Visual) created a series of Pop Vinyls for his groundbreaking indie comic Tuskegee Heirs. Although this is just a concept, the monetary gains from such a merger could be phenomenal for both the Funko brand and all the indie artists.
Cut the Wack Shyt!!!
Let’s admit, we stated before that Funko is great, but they do make some “shytty” products as well. Most notably, the Vinyl Idolz, the Vynl combos, and for some, the Pop Mini keychain. We understand Funko is trying to corner the market by creating all types of collectibles for all price points, but if they eliminated some of their ideas and spent that revenue on what works, they could see some huge returns.
Rewards Program for the Collectors
There are some very loyal followers to the Funko brand. These customers have waited in multiple lines, fought, bled, and cried to collect Pops for years and chances are they haven’t seen a single incentive program that allows them to get an item for an even lower price or free from the actual Funko brand. True, the retailers that sell these products offer rewards such as discount incentives, coupons, etc., but the actual Funko brand giving away a coupon of some kind, NOPE. Although free shipping is a plus, it just means you have to spend more money.
Our recommendation is that they offer some form of discount program, a points accumulation program that leads to a free purchase or some reduced price purchasing for the consumer. Imagine a Funko coupon; a 'Golden Coupon', that allows you to go to any retailer and this coupon guarantees you a Funko chase no matter what!!! This incentive could provide continued loyalty and allow the fruits of the collectors’ labor to not go unnoticed.
A Theory: Disney Pays
Although this next point is just a possible solution to keep the brand alive, its worth thinking about. Funko still needs to be cautious of their stock. Because they are a publicly traded company, if their stock goes to zero, it’s over for them. To increase revenue and to bring their stock over the $15 mark, Disney could buy some equity in the company.
I know....I know... this seems far-fetched but imagine if Disney bought some equity stake in Funko… Disney could offer some guidance into creating a lasting brand that could cover the entire globe (via theme parks, movie merchandise, etc.) and every figure, every doll, every single collectible piece of merchandise funneled through Disney could have the Funko brand on it. In other words, if that was to happen, its possible that Funko could literally be a billionaire brand overnight. Of course they would still have to deal with the backlash of Funko abandoning their other licenses. Could you imagine that, Funko dismissing DC, Warner Brothers, and every other non-Disney owned character? One thing is for certain, we definitely don’t think Funko should side with Warner Brothers alone; we can't even grasp that concept. Remember the Justice League movie?
Honestly at this point, the Funko brand’s stock is experiencing a series of setbacks as lawyers are trying to establish a class action suit against them and they are facing mounting financial costs as they acquire new companies and brands.
However, if they start using these new acquisitions in 2018, we could see the stock and brand grow aggressively within the next six months. As for working with the indie scene, we recommend that they should at least reach out to these individuals and start the conversation. As for the continuance of fan loyalty and continued fan growth, they should start giving out some incentives for the fans. A golden ticket could really be a start.
All in all our recommendation is this... Buy the Stock… but do it very slowly for 2018 in the next 6 months.