Funko, Inc. is a leading pop culture lifestyle brand that has captivated fans worldwide with its whimsical, fun, and unique products. Founded in 1998, the company has evolved from a small collectible manufacturer to a global powerhouse, driving innovation and defining the pop culture consumer products industry.

Funko's Resilient Business Model Navigates Challenges

Funko, Inc. was formed as a Delaware corporation on April 21, 2017 for the purpose of completing an initial public offering (IPO) of its Class A common stock and related transactions in order to carry on the business of Funko Acquisition Holdings, L.L.C. (FAH, LLC) and its subsidiaries. FAH, LLC owns 100% of Funko Holdings LLC (FHL) and FHL owns 100% of Funko, LLC, which is the operating entity.

The company's business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty. Over the years, Funko has built strong relationships with many established content providers and sought to establish new licensing relationships with content providers in order to capitalize on new and emerging trends in pop culture. As of December 31, 2024, the company had license agreements with over 250 content providers covering approximately 930 active licensed properties. This has allowed Funko to build one of the largest portfolios of licensed property in the industry.

Funko's rise to prominence is a testament to its ability to adapt and thrive in an ever-changing market. The company's broad portfolio of licensed content, spanning movies, TV shows, video games, music, and sports, has allowed it to weather industry fluctuations and capitalize on emerging trends.

Financials

In 2024, Funko reported net sales of $1.05 billion, a slight decline from the previous year's $1.10 billion. However, the company's gross margin expanded significantly, reaching 41.4% compared to 30.4% in 2023, driven by a favorable sales mix, lower product costs, and reduced freight and inventory reserve charges. The company reported an annual net loss of $15.07 million, with annual operating cash flow of $123.52 million and annual free cash flow of $99.26 million.

For the fourth quarter of 2024, Funko reported revenue of $293.7 million, an increase of 1% year-over-year, with a net loss of $1.5 million. The revenue growth was driven by strong performance in the direct-to-consumer channel and international markets, particularly Europe, which offset softness in the US. Gross margin in Q4 2024 expanded 480 basis points to 42.4% due to a more favorable sales mix, lower product costs, and reduced freight and inventory reserve charges.

The company's strategic focus on diversifying its revenue streams has paid dividends. Its direct-to-consumer business, which includes e-commerce and flagship retail stores, grew to 24% of net sales in 2024, up from 21% in the prior year. This high-margin channel provides Funko with valuable consumer insights and a direct connection to its passionate fan base.

Performance by Geographic Markets

Funko generates approximately 35% of its net sales outside of the United States, primarily in Europe. In Q4 2024, sales in Europe increased over 20% year-over-year, highlighting the company's successful international expansion efforts.

Product Segments

Funko operates in three primary product segments: Core Collectible, Loungefly, and Other.

The Core Collectible segment, which includes the company's flagship Pop! Vinyl figures, accounted for approximately 77% of Funko's net sales in 2024. Sales of these products increased 0.2% year-over-year in 2024 to $804.4 million.

The Loungefly segment, which includes stylized handbags, backpacks, wallets, clothing, and other accessories, accounted for 16% of Funko's net sales in 2024. Loungefly's net sales decreased 19.9% year-over-year in 2024 to $171.8 million.

The Other segment, which includes emerging brands such as Mondo, Digital Pop, and other product lines, accounted for 7% of Funko's net sales in 2024. Net sales in this segment decreased 6.1% year-over-year to $73.6 million.

Navigating Macroeconomic Headwinds with Agility

Like many consumer-facing businesses, Funko has not been immune to the broader macroeconomic challenges, including tariffs, inflationary pressures, and softening consumer demand in the United States. In response, the company has implemented a multi-pronged strategy to mitigate these headwinds.

Liquidity

As of December 31, 2024, Funko reported the following liquidity metrics:

• Debt/Equity ratio: 0.772

• Cash and cash equivalents: $34.7 million
• Available credit under the $150 million Revolving Credit Facility: $90 million
• Current ratio: 0.939
• Quick ratio: 0.636

Funko's guidance for 2025 reflects its agility in navigating these complexities. The company expects net sales to be modestly up year-over-year, with adjusted EBITDA slightly lower than 2024 at the midpoint of the range. This outlook factors in the anticipated 20% tariffs on imports from China, as well as the softening of consumer demand in the US market.

For Q1 2025, Funko provided the following guidance:

• Net sales between $188 million and $198 million
• Gross margin of approximately 39%
• SG&A expense of approximately $91 million
• Adjusted net loss between $25 million ($0.48 per share) and $22 million ($0.40 per share)
• Negative adjusted EBITDA between $14 million and $9 million

To offset the impact of tariffs, Funko is renegotiating factory costs, accelerating its shift in production to other sourcing countries, and implementing strategic pricing adjustments. Additionally, the company is focused on driving direct-to-consumer sales, which offer higher margins, and expanding its international footprint, particularly in the EMEA region, where it has seen double-digit point-of-sale growth in recent weeks.

Strengthening the Leadership Team for Continued Growth

Funko's success is underpinned by its talented and experienced management team, which has been further bolstered by key additions in 2024. The company appointed Cynthia Williams as its new Chief Executive Officer, bringing a wealth of experience in consumer products, gaming, and e-commerce.

In addition, Funko onboarded Jason Herenstein, CFO of Collector Holdings, to its board of directors, providing valuable insights into collector trends and behaviors across the sports memorabilia, trading card, and gaming industries. The company also elevated Jen Reeves to the role of SVP of Brand, tasked with elevating Funko's brand positioning and driving deeper fan engagement, and Glenn Abell as SVP of North America Sales, who brings extensive experience in global distribution and sales operations.

These strategic hires underscore Funko's commitment to positioning the company for continued growth and success in the dynamic pop culture consumer products market.

Exciting Innovations and Expanding Fandoms

Funko's ability to innovate and connect with its passionate fan base has been a key driver of its success. In 2024, the company unveiled Biddy City, a Biddy Pop expansion that allows fans to build the miniature world of their dreams, showcasing Funko's commitment to delivering unique and engaging experiences.

The company's expansion into the sports memorabilia market, which currently accounts for only 4% of its total revenue, presents significant growth opportunities. Funko's partnerships with the NFL and NBA have already resonated with fans, and the company plans to further leverage these relationships to drive deeper fan engagement across its product lines.

Moreover, Funko continues to strengthen its presence in the music and gaming verticals, capitalizing on the growing popularity of artist collaborations and high-end collectibles. The company's acquisition of Mondo Collectibles, a boutique brand specializing in vinyl records, posters, and other premium pop culture memorabilia, has bolstered its position in the collector market.

Funko's Promising Outlook Amidst Challenges

Despite the macroeconomic headwinds, Funko's long-term prospects remain promising. The company's diversified portfolio of licensed content, focus on direct-to-consumer sales, and international expansion plans position it well to navigate the current landscape and capitalize on emerging trends.

While the first half of 2025 is expected to be challenging, with both net sales and adjusted EBITDA forecasted to decline year-over-year, Funko's confidence in the second half of the year is bolstered by its mitigation strategies and the strength of its brand and fan engagement.

The pop culture consumer products industry has experienced significant growth in recent years, driven by factors such as the proliferation of high-quality content, greater cultural acceptance of pop culture fandom, and increased fan engagement through social media and events. The global pop culture merchandise market is expected to grow at a CAGR of approximately 8-10% over the next 5 years, providing a favorable backdrop for Funko's growth strategies.

As Funko continues to innovate, expand its reach, and leverage its talented leadership team, the company is poised to solidify its position as a dominant force in the pop culture consumer products industry. With its diverse product portfolio, extensive licensing relationships, and strong brand recognition, Funko is well-positioned to navigate the evolving pop culture market and capitalize on new opportunities in the years to come.