Lover of trading, tacos, 3D/AR/VR, cryptos, and most things Japanese

Funko Inc ($FNKO)

Background

Funko is a pop culture consumer goods company serving the United States, China, Vietnam, and the United Kingdom. They create the very popular “Pop!” action figures with stylized, oversized heads, that have been extremely popular with collectors since debuting in 2008.

Funko IPO’s in November of 2017 at $5, opened at $7+, and ran up to $9.41 in quick order. A few weeks later, it dropped down to $6 and has been steadily growing up to $16 most recently.

Stats

Market Cap: $778M
ATR: 1.82
Short %: 4.03
Institutional Ownership: 78.81%
Avg. Daily Volume: 266K

Strengths

In addition to its licensing contracts with over a thousand entities ranging from the NFL, to the Marvel Universe, to Disney, to Pokemon, to WWE, Anime, and more, one of the key advantages Funko has is its speed to market for new products. Funko can bring a new product from concept through design and approval to production in as few as 70 days. This gives them a unique ability to capture and capitalize trends in pop culture. For example, when Game of Thrones unveiled a new character in its season finale, Funko was able to show HBO a printed and painted concept, get the go-ahead, and get the figures on the street in less than three months. Contrast this with giants like Hasbro or Mattel, which not only do not specialize in figures, but also usually take at least 12-18 months to get a new product to market.

In addition to the action figures, Funko produces whimsical pop gear such as tee shirts, purses, bags, pen toppers, and more. Their unique design look allows them to charge a premium for their items, yet they keep the price point of their action figures at under $10 for most. Their exclusive runs, such as the 10″ Thanos from Infinity War, were hugely popular at a higher price point.

Funko’s retail strength lies in its partnerships with big brick and mortar stores like Target and Walmart, where they are expanding their retail shelf space. Funko has developed a “pop store within a store” that leverages many of their properties in an expanding retail space. Years ago, they only had a three-foot end shelf at target, now they are positioned in five different areas of the store. In addition, Funko’s partnership with Target has produced “Funko Fridays”, and eight week exclusive sale that allowed Target customers to buy exclusive gear on consecutive Fridays. This resulted in a jump in Target’s site traffic of over 6500%.

Funko has created a platform, like Lego, that is not fad-dependent. They have a distinct style that is globally enjoyed. They are expanding their footprint in Europe. They had 59% growth in the Pop! figures last quarter, with 39% growth overall, and are guiding toward a high teens to low twenties growth rate for the year. The low volume indicates that this is a relatively unknown newcomer, perhaps having been forgotten by the street after its IPO.

Funko has also acquired an animation studio with the aim of creating content for social media and perhaps even following in Lego’s footsteps and ultimately creating feature films. While the feature film idea is pure speculation on my part, Funko has reported over 40 million views of its animated content last year. By the end of Q2 this year, they had over 50 million views, signaling a double in impressions for their video content.

Risks

Funko is a fast growing pop culture consumer products company. The stock has pulled back from its ATH and when I looked for possible reasons, I discovered that there are at least two pending class action lawsuits against them for misrepresenting their growth rate to investors in preparation for the IPO last November. I didn’t learn much more than that, and the market seems to either not know or not care about the lawsuits. I suspect, though do not know, that these types of filings may be commonplace when investors do not get the price they wanted or expected during the IPO. That said, this does cast a question over Funko’s reported earnings – at least prior to the IPO. From what I’ve learned listening to last quarter’s earnings call, the anticipated growth rate is strong. I am looking forward to the next earnings call, in a few weeks or so, to shed more light on what is going on as I’m sure the lawsuits will come up during the Q&A session after the report.

Summary

I like Funko products and I like their stock. I wish I had thought to look into them earlier, as I would have likely gotten in last year at a lower price point. That said, I like the prospects and will be initiating a small position soon, with the possibility of adding to it after reviewing their Q2 earnings call.

Today I initiated two positions in my Roth IRA – Salesforce ($CRM) and PTC Inc. ($PTC), and added to my core crypto position in Cardano ($ADA). I had transferred my 401(k) plan from Accenture to the Roth in cash, and needed to put that money to work. I had established positions in both securities in my Otaku Ventures trading account, which had already seen positive returns, and my outlook for both these firms into earnings is strong, so I wanted to make the buys in my Roth right away.

Salesforce ($CRM)

Salesforce has been crushing it for years now, consistently remaining one of the top ranked tech companies serving Enterprise. I have been watching this one go up for a long time, but hadn’t put any money to work in it. They report earnings in about a month and have been trending up, so I hopped on the trend and initiated a core position now, well ahead of earnings. If history repeats, it will continue to trend up into earnings and get a nice pop when they report.

$CRM had just hit a 52-week high and had started to pull back a bit when I decided to buy. My initial purchase was at $141.80, just to establish the position in case it continued going up, and I waited for a pullback. In a few days, CRM pulled back to $136, where I added to my position for a net average price of $138 in my Otaku account. I was later to the party for my Roth and initiated that position Friday morning at $147.50. CRM hit a new ATH on Friday at nearly $149, before closing down to just above where I got in.

PTC Inc. ($PTC)

I was clued in to PTC when discussing Akamai’s firm foundation providing network and hardware infrastructure for video streaming with Christine. The topics ranged to Akamai’s IoT prep, at which point I asked what company is better positioned than Akamai for IoT. Christine mentioned PTC, and I jumped in to the research. PTC is an IIoT (Industrial Internet of Things) provider that is leveraging Microsoft’s HoloLens tech to provide AR solutions for manufacturing, among other things. They have just partnered with Rockwell Automation, including a $1B investment from Rockwell that will be used to buy back PTC stock, thus reducing the float. The partnership is to be a close one, with Rockwell’s extensive capabilities directly adding to PTC’s bottom line.

In addition to the natural synergies between the two, PTC partnered with Microsoft and another firm to improve its AR technology. This partnering brings things such as real-time simulation data overlays to PTC’s modeling software. So instead of modeling something in one program, exporting it to another to run analytics, fixing issues in the first program, exporting again to verify the fixes took, over and over again until the product is solid. Now the simulation overlay allows modelers to see in real time things such as stress points and structural weaknesses directly in their modeling program, eliminating the need to export and review in another. This alone will reduce modeling time substantially, in addition to having a high ‘cool factor’. 🙂

I initiated my position in my Roth at $98.50, up about three dollars from where I initiated the position in the Otaku Ventures account. $PTC finished the day just off the highs, almost matching it’s all-time high of a few weeks ago. The big catalyst here is that they are reporting earnings this week, and I’m expecting a good pop. PTC guides conservatively and didn’t factor in the partnership synergies into their outlook. It looks like they prefer UPOD – Under Promise, Over Deliver – which is a method I prefer as well.

It may be too early to see any revenue impact from the partnerships, as they were just announced, but I’m looking forward to listening to the earnings call to hear their forecasts.

Cardano ($ADA)

Coinbase announced they are considering adding five new currencies to their platform, the most interesting of which, to me, is Cardano (ADA). I have a held a core position in Cardano for some time, and have been looking for a catalyst to add to it. This was the trigger for me, and ADA jumped more than 10% on the news. If this had happened last year, Cardano would have jumped substantially higher but alas, the crypto space has changed. Still, the outlook for Cardano looks bright, and I’m glad to have added to my position. Perhaps Asia will hear the news by Monday and we’ll see another substantial pop.

Summary

I traded well this week, overall. I did jump in a bit hastily to CRM, which is something I still need to work on. Just because I have a great idea does not mean that that is the right time to buy. I stuck to my plan, obeyed my rules, and established key positions as intended. All of my positions were profitable by the end of the day.

This is a list of the top holdings in my personal investment accounts at this time. These are stocks I bought and have held/am holding for the long term returns, and will only be sold when there is a clear reason to do so. Most of these have had big runs already and still have room to grow, in my opinion, but I’m not sure I would add to my positions at these levels – perhaps on a big pullback. I’m looking for other opportunities with bigger growth potential now that these are well established.

 

Nvidia

Buy price: $61.97

Current price: $247.33

Return: 300%

Thesis:

The increasing popularity of video games and virtual reality will drive demand for Nvidia’s graphics cards

Notes:

After listening to the earnings conference call a few years back, I learned that not only is Nvidia the market leader in graphics cards for games, but more and more enterprises are utilizing their GPUs in their data centers to increase processing speed. This was a huge eye-opener for me, an unrealized enterprise revenue stream, and after establishing my initial position at $54 I had to bite the bullet and buy more as it went up. Nvidia went on a historic run, was the top earning stock of all markets last year, and has tripled in price since I built my position.

 

Apple

Buy price: $55.64

Current price: $187.97

Return: 238%

Thesis:

The iPhone and AppStore are going to transform the industry

Notes:

When Apple announced the iPhone and I saw what it could do, I knew it was going to change the mobile world. Add in the AppStore’s continuous revenue stream and it was clear the company was onto something that would change the world. 10 years later, smartphones are the norm, and a large percentage of the population can no longer imagine a life without. They have become so ingrained in our daily lives and, like a Tricorder from Star Trek, they have a ton of functions – and are still adding new ones.

 

Amazon

Buy price: $603.31

Current price: $1710.63

Return: 184%

Thesis:

Amazon is destroying traditional retail

Notes:

It took a long time for me to subscribe to Amazon Prime. Now, I do almost all of my shopping with it. Amazon has been crushing it in the retail space for years and has become such a force that it’s hard to imagine it ever going away. In addition to their retail domination, their Amazon Web Services (AWS) offerings have paved the way for companies to get their services into the cloud at great prices. As Amazon kept innovating, their revenues kept increasing, and although I missed the initial run, I was able to get in and start building my position a few years ago during a flash crash in the price.

 

Activision/Blizzard

Buy price: $40.83

Current price: $77.29

Return: 89%

Thesis:

Video games make more money than the movie industry now, and will continue to grow as both the games and technology improve

Notes:

Blizzard has long been a favorite game company of mine. Their attention to detail, story, and character have made almost all of their games instant classics. From the original Warcraft, to Diablo, to WoW, and now Overwatch, they just keep crushing it. And, they pay a dividend to boot. Blizzard’s latest game, Overwatch, was tailor made for multiplayer match play. With the worldwide explosion of eSports, and the announcement of the Overwatch League, Blizzard has established itself as a top contender. eSports are HUGE in Asia, and are just gaining traction here in the U.S., so this one has a long way to go still. And I’ve only owned it for about two years.

 

Google (now Alphabet)

Buy price: $267.82

Current price: $1155.08

Return: 327%

Thesis:

It’s Google. They own search and have a ton of other growing businesses

Notes:

With the #1 search engine in the world, Google has been dominating search and its advertising for years. Add to that YouTube, long time number one video platform, and the company’s continual investment in new technologies and platforms, and owning Google is a no-brainer. Who gets anyplace new without Google Maps now? These days, I’m most excited about their Waymo driverless car technology and their cloud solutions. Going forward, Google is going to need to keep developing new revenue streams as they are starting to lose search to Amazon (people just search Amazon for what they want to buy now) and advertising to Facebook (where millions still spend their time online.)