MONTERREY, MEXICO - MAY 14: Artist Noe González poses with the Funko of Hugo López Gatell, Mexican ... [+]
If you find it more fun to share the ups and downs of your money on social media than to worry about the risk of losing it, there’s no better story than the latest meme — non-fungible tokens.
NFTs let you trade things — like digital art, videos of famous basketball players executing a slam dunk, or the very first Tweet from Twitter’s
Now you can own stock in a real company that’s doing a decent business making pop culture dolls while aiming to cash in on the NFT craze.
The company in question is Everett, Wash.-based Funko. If you think its 331% rise in the last 12 months does not fully reflect the value of this combination of a real business and a meme one, you should buy the stock.
My guess is that the recent rise in its stock reflects its expectations-beating fourth quarter results, its big boost in guidance for the current quarter, and the possible revenue kicker from its NFT ambitions.
(I have no financial interest in the securities mentioned).
What Is An NFT?
For some fun — that also explains NFTs — watch this video from March 27’s edition of Saturday Night Live.
If you don’t have time for that, an NFT is a form of cryptocurrency that purports to enable people to turn bundles of code — in the form of say, digital art — into “one-of-a-kind” items deemed “verifiable assets” that can be traded on the blockchain, according to Toy News.
What has spurred NFTs into the popular imagination are some recent eye-popping trades.
Earlier this month, Digital artist Mike Winkelmann, known as Beeple, hauled in a whopping $69 million in a Christie’s auction for his NFT — titled "Everydays: The First 5000 Days."
More specifically, Vignesh Sundaresan, founder of the Metapurse NFT project, bought Beeple’s “jpeg file of a digital collage with 5,000 daily futuristic images he made each day from May 1, 2007 through Jan. 7, 2021,” according to CNBC.
Beeple sold his NFT — which enables Sundaresan to display the token — but Beeple retains the copyright. Thanks to that copyright, on March 22 Beeple sold an image from "Everydays" for $6 million on Nifty Gateways, an NFT marketplace.
Smaller NFT trades include a video of LeBron James doing a slam dunk which sold for over $200,000, according to KCRW, and the NFT for Twitter CEO Jack Dorsey’s first Tweet — which went for a cool $2.9 million, noted CNBC.
These trades have proven hugely profitable and are loads of fun to talk about.
Funko’s Boffo Fourth Quarter
How can ordinary people overcome their fear of missing out?
Consider investing in Funko — short interest 11.96%, according to Morningstar — a US-based pop culture consumer products company.
Morningstar describes the company as a creator of “whimsical, fun and different products” which enable its customers to show the world how fond they are of characters in movies, TV shows and video games and how much they like specific musicians or sports teams.
Funko holds licenses to make characters from “Game of Thrones, Walking Dead, Disney, Marvel, Harry Potter, Fallout, and others. Its products include Pop, Dorbz, Mystery Vinyl, Plush, and Action Figures,” according to Morningstar.
Funko’s fourth quarter 2020 financial report did everything right. According to MarketWatch, Funko revenues for the quarter rose 6% to $226.5 million — nearly $31 million above what analysts had estimated. What’s more, Funko’s adjusted earnings per share of 29 cents were 61% more than the year before and 107% above the analysts’ forecasts.
Funko’s Accelerating Growth
Funko expects growth to accelerate in 2021. According to a press release, the company is forecasting 25% to 30% net sales growth and adjusted EBITDA margins of 13.5% to 14%.
CFO Jennifer Fall Jung expressed confidence in the company’s future. As she said, “We feel confident about the trajectory of the business and believe we are well-positioned from a strategic, operational and financial perspective. We expect to continue investing for growth in 2021 while also driving strong Adjusted EBITDA margins and improvement on the bottom line.”
Funko’s NFT Play
CEO Brian Mariotti recently said that Funko plans to move into NFTs. According to Toy News, Mariotti said, “We can tie digital NFTs to our fan base and link entities with physical products. So for example, we had a pack of NFTs... including a few rare ones.”
Customers who own the rare ones will receive “a free product that's tied to that rare NFT, which means you have a super rare physical product that ties to your super rare NFT.”
By creating demand for collectibles and deliberately under-supplying that demand, Funko drives up their value in the secondary market. As Toy News pointed out, an example of this dynamic is Funko’s “POP! Vinyl line” figures which are inexpensive to make but which Funko produces in limited quantities — thus driving up “the supposed value for the item on the secondary market.”
Its elevated short interest suggests that some investors doubt that Funko’s 331% rise in market value is justified by the discounted value of its future cash flows. But I give Funko credit for being much more of a real business than GameStop
