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Pop culture collectibles manufacturer Funko (NASDAQ:FNKO) beat analysts' expectations in Q2 CY2024, with revenue up 3.2% year on year to $247.7 million. On the other hand, next quarter's revenue guidance of $289.5 million was less impressive, coming in 9.3% below analysts' estimates. It made a non-GAAP profit of $0.10 per share, improving from its loss of $0.47 per share in the same quarter last year.
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Funko (FNKO) Q2 CY2024 Highlights:
- Revenue: $247.7 million vs analyst estimates of $231 million (7.2% beat)
- EPS (non-GAAP): $0.10 vs analyst estimates of -$0.14 ($0.24 beat)
- Revenue Guidance for Q3 CY2024 is $289.5 million at the midpoint, below analyst estimates of $319.2 million
- The company reconfirmed its revenue guidance for the full year of $1.08 billion at the midpoint
- EBITDA guidance for the full year is $75 million at the midpoint, below analyst estimates of $79.84 million
- Gross Margin (GAAP): 42%, up from 29.2% in the same quarter last year
- EBITDA Margin: 11.3%, up from -3.2% in the same quarter last year
- Free Cash Flow of $36.7 million, up from $10.43 million in the previous quarter
- Market Capitalization: $449.1 million
Boasting partnerships with media franchises like Marvel (NASDAQ:MRVL) and One Piece, Funko (NASDAQ:FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.
Toys and ElectronicsThe toys and electronics industry presents both opportunities and challenges for investors. Established companies often enjoy strong brand recognition and customer loyalty while smaller players can carve out a niche if they develop a viral, hit new product. The downside, however, is that success can be short-lived because the industry is very competitive: the barriers to entry for developing a new toy are low, which can lead to pricing pressures and reduced profit margins, and the rapid pace of technological advancements necessitates continuous product updates, increasing research and development costs, and shortening product life cycles for electronics companies. Furthermore, these players must navigate various regulatory requirements, especially regarding product safety, which can pose operational challenges and potential legal risks.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Funko grew its sales at a weak 6.8% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Funko's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.8% annually.
This quarter, Funko reported reasonable year-on-year revenue growth of 3.2%, and its $247.7 million of revenue topped Wall Street's estimates by 7.2%. The company is guiding for a 7.5% year-on-year revenue decline next quarter to $289.5 million, an improvement from the 14.4% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 4.8% over the next 12 months, an acceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Funko broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.
Funko's free cash flow clocked in at $36.7 million in Q2, equivalent to a 14.8% margin. This quarter's result was good as its margin was 11.3 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.
Key Takeaways from Funko's Q2 Results We were impressed by how significantly Funko blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter and EBITDA guidance for the full year missed. Zooming out, we think this was a mixed quarter. The market seemed to focus on the negatives, and the stock traded down 1.7% to $8.50 immediately following the results.
