Streaming And Licensing Trends Will Expand Global Fandom Markets

Key Takeaways

• Faster than expected international, DTC, and licensing growth, combined with premium partnerships, uniquely positions Funko for strong, recurring, and global revenue expansion.
  
• Margin improvements from production shifts, pricing power, and digital innovation set up a rapid, sustained earnings rebound and long-term structural profitability.
  
• Heavy dependence on licensed IP, poor inventory management, shifting consumer preferences, and mounting financial distress threaten Funko's profitability and long-term sustainability.

Catalysts

A pop culture consumer products company, designs, manufactures, and markets licensed pop culture products in the United States, Europe, and internationally.

• Analyst consensus highlights international and DTC growth, but recent 18% international POS growth and a robust pipeline of new DTC offerings suggest the business could experience a much faster inflection in global sales and market share capture than current models assume, directly driving outsized revenue recovery and expansion of Funko's addressable market.
  
• While analyst consensus expects margin recovery from cost-cutting and resumed US shipping, aggressive price increases with no observable volume loss, paired with a near-complete production shift out of China, set up a step-function improvement in gross margins and operating leverage that could deliver a sharp rebound in earnings much sooner than the Street anticipates.
  
• Funko's growing ecosystem of premium licensing partnerships-now spanning top streaming, gaming, sports, and anime IP-positions the company to uniquely monetize the ongoing globalization of pop culture, creating recurring, high-quality revenue streams that could compound as streaming content proliferates worldwide.
  
• The rising wave of adult collectibles and fandom culture, amplified by social media and influencer marketing, is supercharging collectible demand with multi-generational appeal; Funko, as the category leader, is poised to capture a disproportionate share of wallet and generate more stable, less cyclical cash flows.
  
• Accelerated innovation in digital commerce, including new e-commerce features and personalized products like Pop! Yourself, enables Funko to deeply leverage first-party data for direct marketing, higher average order values, and cross-selling, supporting sustained revenue growth and structurally higher long-term margins.

Funko Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Funko compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Funko's revenue will grow by 6.0% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Funko will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Funko's profit margin will increase from -6.7% to the average US Leisure industry of 6.1% in 3 years.
• If Funko's profit margin were to converge on the industry average, you could expect earnings to reach $70.6 million (and earnings per share of $0.92) by about August 2028, up from $-65.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.2x on those 2028 earnings, up from -3.7x today. This future PE is lower than the current PE for the US Leisure industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 3.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.94%, as per the Simply Wall St company report.

Funko Future Earnings Per Share Growth

Risks

• Funko's overreliance on licensed intellectual property, alongside minimum guaranteed royalties, exposes the company to heightened risks if licensors increase fees, partnerships are lost, or if changing popular culture trends shift consumer demand-this could lead to declining gross profits and shrinking net margins.
  
• The company's persistent inventory management issues, evidenced by frequent increases in inventory reserves and uncertainty around the magnitude of order cancellations versus resumed shipments, point to weak operational controls which can pressure earnings and consume cash flows over time.
  
• Secular trends toward digital entertainment and away from physical collectibles suggest a declining long-term addressable market for Funko's core products, which threatens revenue growth and undermines the ability to command premium pricing.
  
• The disclosure regarding "substantial doubt about the company's ability to continue as a going concern," coupled with $256.6 million of debt, challenging adjusted EBITDA, and the need to issue ATM equity to bolster liquidity, indicate ongoing financial distress that could lead to shareholder dilution and impaired profitability.
  
• Snap-back in product demand from trade or tariff disruption may mask deeper volatility in discretionary consumer spending or taste shifts; increasing preference for environmentally sustainable products and pressure from powerful retailers like Amazon and Walmart can force further discounting, compressing industry-wide and company-specific margins over time.

Valuation

• The assumed bullish price target for Funko is $5.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Funko's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $2.5.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $70.6 million, and it would be trading on a PE ratio of 7.2x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of $3.51, the bullish analyst price target of $5.0 is 29.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.