Funko Shares Pop! As DA Davidson Starts Coverage With Buy

Shares of Funko Inc FNKO, the makers of the popular Pop! figures, were up on Friday after DA Davidson initiated coverage of the stock with a Buy rating.

The Analyst

DA Davidson’s Linda Bolton Weiser started coverage on the toy company with a Buy rating and a $29 price target.

The Thesis

The company, which went public in late 2017, saw sales grow by more than 30% in each of its first two years and then 20% in 2019, and Bolton Weiser wrote in a note that its marketing strategy has been a winner.

The Everett, Wash.-based company’s Pop! figures are based on characters from pop culture, and it has a portfolio of more about 1,100 licenses to produce the likenesses of the various figures.

Action figures and accessories are the fastest growing toy category in the U.S., Bolton Weiser noted, putting Funko at the center of a major opportunity.
While traditional toy sales were down in 2018, retail sales and action figures were up 10%.

Its growth plans look strategically strong too, because it has plans for growing in board games, a category that’s 30% larger than figures and accessories. U.S. board game retail sales were $2.1 billion in 2018 vs. $1.36 billion in 2013, representing a five-year annual growth rate of 9.5%.

Everyone A Fan Of Something

Funko “is built on the principle that everyone is a fan of something and that the evolution of pop culture is leading to increasing opportunities for fans to express their loyalty,” Bolton Weiser wrote, adding that fans see Funko's products as a way to engage more with their favorite pop culture content.

Bolton Weiser also praised the company’s fast approach to getting licensed, which allows it to get new characters on the market in just over two months.

China Insulation

Another advantage for Funko is that it's putting all its incremental outsourced production outside of China, mostly in Vietnam, insulating it from potential China trade war problems. At the end of last year, about half of its manufacturing was outside of China. Any tariff impacts it does face from the production still in the country will be dealt with in pricing, she said.

Price Action

Shares of Funko traded around $24.31 Friday afternoon. The stock hit an intraday high of $25.25.

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