Pop culture toymaker Funko Pop (NASDAQ: FNKO)
shares were already suffering prior to the COVID-19 pandemic plunge in February 2020 that plunged the S&P 500 index (NYSEARCA: SPY)
by (-34%) in March 2020. We outlined opportunistic pullback levels in previous Funko Pop Shares Have More Upside
article published June 8th
. Funko shares hit a low as $3.12 per share before recovering back to $6.40s into Q2 2020 earnings. Funko Pops have a parallel trajectory with the comic book and collectibles market, which is currently scorching hot as speculation abounds regarding Marvel Cinematic Universe (NYSE: DIS)
and DC Fandome (NYSE: TWX)
schedule of projects. While earnings showed sequential improvement, the markets punished shares back to key support levels. This pullback once again sets up opportunistic entries for risk-tolerant investors looking to ride a second-half recovery in the collector’s market.
Q2 FY 2020 Earnings Release
On Aug. 6, 2020, Funko released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported earnings of (-$0.20) per share versus consensus analyst estimates of (-$0.41) per share, beating estimates by $0.21 per share. Revenues fell (-48.69%) to $98.1 million year-over-year (YoY) beating analyst estimates by $21.43 million. During the quarter, the Company improved gross margins to 36.6% while decreasing SG&A expense by 10% to $39.1 million. Net loss for the quarter was (-$15 million). The Company cut 25% of its workforce to redirect resources and focus on the direct-to-consumer channel. Funko closed out the quarter with $87 million of liquidity comprised of $41.1 million and $45.9 million revolver.
April was the most challenging month due to government-mandated non-essential business closures. Order trends improved from May forward as stay-at-home mandate liftings were phased in. Retail partner store closures from COVID-19 impacted sales channels but Funko saw direct to consumer (DTC) e-commerce sales grew by 350% YoY in Q2 through the relaunched Funko.com and LoungeFly.com sites. Loungefly.com did more sales in Q2 than all of FY 2019. The Company indicated strong resurgence in demand within the domestic mass-market. Funko launched Marvel Battleword: Mystery of Thanostones and multiple new board games. Funko launched Stitch Shop, Loungefly’s licensed apparel and accessory line. The Company also pushed new products slated for Q2 forward to Q3 for Europe which impacted sales declines of (-71%) versus (-36%) domestically. Funko anticipates a net (-25%) YoY sales decline in Q3 but has assembled the most diverse product offering to accommodate the white-hot collector’s market. This is key as production schedules resume with numerous live action movies and television series projects.
Funko noted that evergreen properties made up 66% of sales in Q2 versus 46% YoY. The Star Wars Mandalorian products were the largest licensed properties as well as Marvel Comics (sixth largest property). The Stitch Shoppe is a high-quality licensed apparel line with limited edition exclusive pins that add an element of collectability. The Company understands how to appeal to the collector’s market by releasing rare Funko Pops randomly to fuel the treasure hunt inspired surge in sales. The pandemic has enabled the Company to discover how strong the DTC channel can be as evidenced by the growth but also the immediate impact from the 200,000 viewers in the first minute of Virtual Comic-Con. The Company plans to launch a European D2C operation in September 2020. During the conference call, management noted that June was the best month of the quarter and that July sales were exceeding expectations.
FNKO Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for FNKO stock. The monthly rifle chart triggers a market structure low (MSL) buy above $6.14. The weekly rifle chart triggered its MSL buy above $4.23. The most significant technical change since our June article on FNKO is the monthly stochastic (finally) crossing back up and holding the monthly 5-period moving average (MA) support at $5.40. The stochastic is still under the 20-band, but a pierce through can trigger a very strong surge in shares. The weekly rifle chart may be forming a pup breakout if the stochastic can cross back up through the $6.28 Fibonacci (fib) level. The sell-off from Q2 earnings presents opportunistic pullback levels at the $5.40 monthly 5-period MA, $4.96 fib and $4.47 fib/sticky 5s zones. FNKO shares fall into the consumer discretionary category of laggards that may see a surge of money flow from the migration of money flow from the Nasdaq into the laggard S&P 500 even before an FDA approval for COVID-19 vaccine.
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However, in the midst of any selloff, there is money to be made. And the good news for investors is that many of the same stocks that were good buys in March, are still the stocks to buy right now. And while some of these stocks fit the classic definition of defensive stocks, you’ll find a few genuine growth stocks included on this list as well.
View the "10 Stocks to Buy On Fears of a Second Coronavirus Wave".