How Funko Fared In First Post-IPO Earnings

Funko Inc FNKO, a manufacturer of licensed pop culture toys, recently offered its shares to the public in an IPO. The company offered 10.42 million shares priced at $12 each, although the stock's trajectory since then has been uninspiring. 

The company released its first earnings report as a public company Tuesday. 

The Analyst

Jefferies analyst Stephanie Wissink maintained a Buy rating on Funko with a $13 price target.

The Thesis

Following Funko's results, Jefferies' model and thesis are largely unchanged, analyst Wissink said in a Wednesday note. (See Wissink's track record here.) 

The third quarter report was on the mark, with low-20s sales growth driven by a 27-percent increase in active properties and strong growth across regions, the analyst said.

With the company's EU distributor shifting sales to direct and inventory growth kept in check, gross margins expanded 170 basis points, although higher royalties and freight expenses served as offsets, Wissink said. 

Wissink said sees direct-to-consumer, or DTC, and speed to market as a powerful combination for Funko.

The analyst made some slight revisions to her fourth quarter adjusted EBITDA estimate due to the timing of the IPO, subsequent pay down and acquisition considerations.

"IPO timing factored into interest carry costs, monitoring expenses (to sponsor) and the loss on extinguishment of debt."

Jefferies noted that the company's fourth quarter guidance that calls for sales of $144-149 million and adjusted EBITDA of $28.5-31 million, "essentially bracketing the Street but getting there slightly differently," Wissink said. 

"Looking ahead, valuation support is dependent on consistent execution and sales driven cost leverage." 

The Price Action

After clocking in a loss of over 41 percent and ending at $7.07 on its debut session Nov. 2, the stock has been trading below its offer price, although it has cut its losses since then.

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