Stock Story -
Pop culture collectibles manufacturer Funko (NASDAQ:FNKO) fell short of analysts' expectations in Q1 CY2024, with revenue down 14.4% year on year to $215.7 million. On the other hand, next quarter's outlook exceeded expectations with revenue guided to $232.5 million at the midpoint, or 1% above analysts' estimates. It made a non-GAAP loss of $0.17 per share, improving from its loss of $0.53 per share in the same quarter last year.
Is now the time to buy Funko? Find out by reading the original article on StockStory, it's free.
Funko (FNKO) Q1 CY2024 Highlights:
- Revenue: $215.7 million vs analyst estimates of $220.3 million (2.1% miss)
- EPS (non-GAAP): -$0.17 vs analyst estimates of -$0.30 (42.4% beat)
- Revenue Guidance for Q2 CY2024 is $232.5 million at the midpoint, above analyst estimates of $230.1 million
- The company reconfirmed its revenue guidance for the full year of $1.08 billion at the midpoint
- Gross Margin (GAAP): 40%, up from 31.6% in the same quarter last year
- Free Cash Flow of $10.35 million, down 65% from the previous quarter
- Market Capitalization: $339.4 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 GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Funko's annualized revenue growth rate of 8.2% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Funko's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 3.9% over the last two years.
This quarter, Funko missed Wall Street's estimates and reported a rather uninspiring 14.4% year-on-year revenue decline, generating $215.7 million of revenue. The company is guiding for a 3.1% year-on-year revenue decline next quarter to $232.5 million, an improvement from the 24% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 4.1% 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.
While Funko posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Funko's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 2.2%.
Funko's free cash flow came in at $10.35 million in Q1, equivalent to a 4.8% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter.
Key Takeaways from Funko's Q1 Results We were impressed by how significantly Funko blew past analysts' operating margin and EPS expectations this quarter. On the other hand, its revenue missed, but its full-year revenue guidance beat, which is more important to investors. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 13.3% after reporting and currently trades at $7.75 per share.
