Funko Files for IPO: Should you Invest?
During the NYCC 2017 convention this happened….
Approximately 1 to 2 days ago, Geekwire announced that the Funko company will be filing an IPO soon. For those who are not investor savvy, an IPO means an Initial Public Offering. What does this mean? It means that fans and collectors of those little vinyl statues can now own a piece of the company. The question from this announcement should be:
“Should I Invest in the Company?”
Here’s my response…
From reading the S-1 Form from the S.E.C (Securities Exchange Commission); Funko claims the following:
"They have strong licensing relationships with many established content providers, such as Disney, HBO, LucasFilm, Marvel, the National Football League and Warner Brothers."
"They sell their products through a diverse network of retail customers across multiple retail channels, including specialty retailers, mass-market retailers and e-commerce sites."
"Their current retailers are Amazon, Barnes & Noble, Entertainment Earth, GameStop, Hot Topic, Target, Toys R' US and Walmart in the United States, and Smyths Toys and Tesco internationally."
"They estimate that enthusiasts, who are more engaged in pop culture, and collectors, who regularly purchase their products and self-identify as collectors, make up approximately one-third of their customers."
"They create products to appeal to a broad array of fans across consumer demographic groups—men, women, boys and girls—not a single, narrow demographic."
What the filing describes about the company is true. They are a pop culture based company, which creates a “treasure hunting” experience for customers in multiple retail stores and e-stores across America and overseas as well. If you don’t believe me just log onto Facebook, type the word Funko, and you can see a surge of Internet based retailers as they sell, exchange and trade their Funko products for another. Although Funko, has created jobs across America in multiple indie and big company retail chain stores, followed by the creation of multiple e-retail based stores, they also have a few issues that seem to be taking place in multiple stores across the country.
The Leftovers
For every Funko product that gets bought, sometimes there are few products that remain. Sometimes a lot of them. In regards to Funko Pops, if you were to walk into a Gamestop, Target, Toys, R’ US, FYE, or even a Barnes and Noble you’ll see a sea of them. Some new, some regularly priced and some on clearance, with prices anywhere from $8 to $3 to .99 cents. As ‘Brand New Pops’ come into stores, sometimes the older ones stay longer in stores, accumulate a long shelf life and become priced reduced. Speaking with a rep at a Texas based Gamestop, they currently have "‘Pops’ on sale at 3 for $30, and 'clearanced' at $8.99, and $5". Toys R’ US stores have a clearance section, with Funko related items as low as $3.
The Debt
The Company owes money; a whole lot. I’ll let their prospectus speak for itself:
As of June 30, 2017, we had $319.1 million of indebtedness outstanding under our Senior Secured Credit Facilities, consisting of $227.0 million outstanding under our Term Loan A Facility (net of unamortized discount of $6.1 million),$41.0 million outstanding under our Term Loan B Facility (net of unamortized discount of $6.0 million) and $51.1 million outstanding under our Revolving Credit Facility. As of June 30, 2017, we also had $20.0 million in aggregate principal amount of promissory notes payable to certain members of FAH, LLC.
In order to service this indebtedness and any additional indebtedness we may incur in the future, we need to generate cash. Our ability to generate cash is subject, to a certain extent, to our ability to successfully execute our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control. We cannot assure you that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financing will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs. To the extent we are required to use our cash flow from operations or the proceeds of any future financing to service our indebtedness instead of funding working capital, capital expenditures or other general corporate purposes, we will be less able to plan for, or react to, changes in our business, industry and in the economy generally. This will place us at a competitive disadvantage compared to our competitors that have less indebtedness. – pg. 56
It appears that the company needs to go public in order to survive. Don’t be alarmed though multiple companies have been placed in debt situations and generated money to survive. For example, Apple was on the brink of disaster in 1997 and bounced back with a 150 million dollar investment from Microsoft and the company was saved. Additionally, Marvel even filed for bankruptcy and the outlook of the company looked gloomy until Merrill Lynch gave Marvel access to a huge reservoir of cash: $525m over seven years, which it could use to spend on 10 movies with budgets ranging from $45m to $180m. Needless to say it was a sound investment.
Should you Invest?
The company has acquired multiple licenses for characters in movies, TV shows, video games, music and sports. They are considered the ‘heavy hitters’ in the global licensed pop culture product industry and are fundamentally the ‘go to’ product to buy at various comic-cons across the nation and abroad. For example, Funko has products in Asia as well (Pop Asia).
MY VERDICT: INVEST IN THE COMPANY
My Reason
Funko has created careers for multiple entrepreneurs in both brick and mortar stores and online. They have revived comic book stores, created various new indie retail stores and contributed to the underground pop culture of toy collecting. Additionally, they’ve also created underground markets in which people gather to buy, sell and trade Funko products. If you don’t believe me shop online to WiseGuys Collectibles.com or research Jersey Funko Collectors on Facebook. I guarantee you you’ll have a blast shopping or chatting.
Funko has assisted us by providing inexpensive products that bring joy and love to customers at a reasonable price. When the company goes public, I hope to be the first in line to buy my shares. I hope you do the same. Long Live Funko!!!
