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CNN Affairs

Forget Hasbro, Mattel and Lego. The hottest toy company might just be Funko, the maker of pop culture characters with moving heads.

You’ve probably seen (and maybe even owned) one of the Pop! Vinyl Figures For Marvel Super Heroes, including Captain America and Thor. Funko also replicates Star Wars characters like R2-D2 and C-3PO, Netflix’s Eleven (NFLX) Stranger Things, and even real NFL and NBA athletes. They are popular with children as well as serious collectors.

Fans love Funko (FNKO) toys. And investors too.

The company reported sales growth of nearly 25% in the third quarter of 2018. In November, it also raised its revenue and profit outlook for the year.

Funko will release its fourth quarter results on February 28. Analysts expect sales to increase nearly 20% from a year ago and earnings per share to more than double.

Funko’s stock has risen by over 40% this year. But stocks have been extremely volatile since Funko went public for $ 12 in November 2017.

The stock plunged more than 40% on its first day of trading to around $ 7 amid fears the company was a fad. But it rebounded, surpassing $ 30 last September. The shares were trading around $ 19 on Tuesday.

Looks like Funko is doing really well. The company was founded in 1998 with what she describes as an emphasis “on low tech toys and the nostalgia theme”. There is clearly a market for this. Wall Street predicts sales will hit nearly $ 740 million in 2019, up about 15% from last year.

And now Funko hopes to diversify further.

Piper Jaffray analyst Erinn Murphy believes new Pokémon toys this year will benefit from the release of the movie “Pokémon Detective Pikachu” in May and the animation “Mewtwo Strikes Back: Evolution,” which will be released in Japan in July. .

Murphy wrote in a report that Funko had already heavily engaged on Instagram for articles about his toy for the Bulbasaur character. And she estimates that Pokémon toys could potentially generate $ 50 million in annual sales for Funko, a level comparable to the numbers in Star Wars.

Funko also started making t-shirts, hoodies, and other clothing, and has a studio that produces short cartoons.

The hope is to sell even more Funko products to pop culture obsessed children and young adults.

Along with the studio, Funko also draws inspiration from Hasbro (HAS) and Lego, both of which have had success with animated films and TV shows.

Matte (MAT) is also looking to get into entertainment, having signed deals with Warner Bros. to produce Barbie and Hot Wheels films. (Warner Bros., like CNN, is part of WarnerMedia, owned by AT&T (T).)

Funko also announced last week that it was acquiring board game maker Forrest-Pruzan Creative LLC, a company that has developed pop culture games focused on Disney villains, Harry Potter, and even the late artist and host of television Bob Ross, famous for painting. happy little trees.

Funko chairman Andrew Perlmutter said in a press release that the acquisition aligns with the rest of the company’s strategy.

“The games category is another way to bring pop culture to our ever-growing fan base,” he added.

The toy retail industry is changing, however, which could pose challenges for Funko. Despite the announcement of a happy holiday a few weeks ago, Mattel shocked Wall Street on Friday with a low earnings warning for 2019, in part because of the Toys “R” Us bankruptcy.

Always. Funko didn’t have about the same level of exposure to Toys “R” Us as its bigger toy rivals. Funko said in its latest annual report that Toys “R” Us sales were only 3% of overall revenue, compared to nearly 10% for Mattel and Hasbro.

Instead, Funko relies more on specialty retailers like GameStop (GME) and Hot Topic, mass retailers like Walmart (WMT) and Target (TGT), and e-commerce sites including Amazon (AMZN). .