B.Riley has reaffirmed its Buy rating on Funko (NASDAQ: NASDAQ:FNKO) with a steady price target of $13.00. The endorsement follows the company's recent partnership with the National Football League (NFL), which was announced last week.
The collaboration will enable Funko to offer custom Pop! Yourself figures featuring t-shirts and hoodies with logos from any of the 32 NFL teams.
The analyst highlighted that the timing of the NFL partnership coincides with the start of the NFL season, which could serve as an appealing gift option for both new and existing customers during the upcoming holiday season.
The initiative is expected to attract additional consumers to Funko's diverse product range, as over 80% of Pop! Yourself purchasers have been new direct-to-consumer customers since the online launch last fall.
The firm's analysis suggests that the new NFL-themed merchandise could significantly contribute to Funko's growth by introducing new customers to the company's brands. This strategy is anticipated to not only extend Funko's market reach but also to enhance the company's Adjusted EBITDA margins and cash flow conversion.
Funko's partnership with the NFL is part of a broader effort to capitalize on popular cultural trends and partnerships, aiming to leverage the strong fanbase of the NFL to drive sales. The collaboration is seen as a strategic move to tap into the lucrative sports merchandise market, especially during high-demand periods such as the holiday season.
In other recent news, Funko reported steady growth in its Q2 earnings call, announcing a 3% increase in net sales, reaching $248 million, and a robust adjusted EBITDA of $28 million, surpassing expectations.
The company's gross margin stood at 42%. The newly introduced Bitty Pop! range saw sales more than double, and the company also announced the launch of Bittyverse, an expanded product line.
Despite economic challenges, Funko maintained its full-year guidance, expecting net sales to range between $1.047 billion and $1.103 billion and adjusted EBITDA to hit between $65 million and $85 million.
In other developments, Yves LePendeven was appointed as the new Chief Financial Officer. The company anticipates higher net sales in Q4 due to an increased direct-to-consumer sales mix. However, it also expects higher freight costs to impact Q3 and Q4, reflected in the gross margin guidance of 38% to 39%.
While the U.S. market faced challenges due to reduced SKUs and a weaker content slate, European sales reported a 20% growth, with strong performance in Eastern Europe, Greece, and the Middle East. Funko plans to expand its successful licensed store model in the Middle East and EMEA region.
InvestingPro Insights
As Funko (NASDAQ:FNKO) teams up with the NFL to expand its product offerings, the company's financial metrics and market position suggest a blend of opportunities and challenges. According to InvestingPro data, Funko currently has a market capitalization of $564.75 million. Despite a challenging environment with a P/E ratio standing at -12.08, reflecting market skepticism about near-term earnings, the company's revenue remains robust at $1067.54 million over the last twelve months as of Q2 2024. This indicates a substantial market presence, even though revenue has seen a decline of 10.33% during the same period.
InvestingPro Tips highlight that Funko is trading near its 52-week high, with a price 97.58% of the peak, which could signal investor confidence in the company's growth trajectory. This is further supported by a strong return over the last month, with a 19.66% increase, and an impressive six-month price total return of 48.51%. However, analysts have revised their earnings expectations downwards for the upcoming period, and the company is not anticipated to be profitable this year. With no dividend payouts to shareholders, the focus for investors may be on capital gains rather than income. For those interested in deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/FNKO.
The strategic NFL partnership may serve to bolster consumer interest and potentially improve financial metrics in the future, but current performance and analyst sentiments suggest a cautious approach. As Funko navigates these dynamics, investors and stakeholders will be watching closely to see how this partnership influences the company's market performance and financial health.
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