How Collectibles Brand Funko Became A $1 Billion Pop Culture Powerhouse

Back in January, 2017 Funko
FNKO
, then a largely under-the-radar collectibles company, predicted that it would hit $1 billion in revenue within five years.

Since then, the Everett, WA based company has gone public, recovered from what was described as the “worst first-day return for an IPO in 17 years”, scored licensing deals with some of the hottest television, movie, and gaming properties, landed a starring role in the Macy’s Day parade, and branched into new product categories like apparel, and NFTs, and added new licensing partnerships in anime, sports, and music.

Oh, and along the way they also achieved that billion dollar goal. This month they reported net sales of $1.029 billion for fiscal 2021.

Funko is starting the next phase of its life as a billion dollar-plus company with projections of 20 to 25% growth this year, a four-part plan for continued growth, a number of protective moats that guard it from encroachment by competitors, and a new CEO who is confident that the best of Funko is yet to come.

“It is an exciting time for the company,” said new CEO Andrew Perlmutter. “We think we know what big is, and then we’re bigger.”

In the toy business, Funko still is relatively small compared to Hasbro
HAS
, with revenues of $6.4 billion last year, and Mattel
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at $5.4 billion. But in the pop culture space, Funko is a giant with little competition, and with the potential to catch up to the top toy players.

Brian Mariotti, who bought Funko in 2005, back when it was a seven-year-old maker of bobblehead dolls, stepped down as CEO in January, taking on a new role of chief creative officer as part of a well-organized transition plan.

Mariotti is credited with steering the company to the place where almost every movie star and celebrity wants to see themselves as a Funko figure.

“Everybody wants to be a Pop! Vinyl figure,” said James Zahn, deputy editor of the Toy Book, referring to the Funko collectible figures known for their over-sized heads and their large, round eyes. “Actors, celebrities and musicians now look at it as a huge feather in the cap,” Zahn said.

Hollywood stars and producers feel they haven’t made it unless their show or movie becomes a Funko collectible, a status achieved by shows ranging from Squid Game and Game of Thrones to Seinfeld and Golden Girls.

Perlmutter has worked closely with Mariotti at Funko for almost a decade, first as senior vice president of sales, and since 2017 as president.

He remembers that the $1 billion by 2021 prediction was met with some skepticism when it was made.

“We’re misunderstood by many different audiences, whether it be the financial audience or our perceived competitors in the toy industry,” Perlmutter said.

“We’re not a toy company, we’re a pop culture company,” he said.

It’s a company that has achieved the enviable position of being a platform that is as well known, and beloved by collectors, as the entertainment properties it licenses.

“When customers go into stores they say do you have any Funkos, or do you have any Pop!. Or I’m looking for the Funko Pop! Darth Vader or the Funko Pop! Batman. That to us is the magic – because our brand is what they’re looking for, but they’re looking for their favorite character within that brand,” Perlmutter said.

While Funko may had been misunderstood by non-collectors, it has grown by understanding what fans wanted in terms of collectibles, and supporting those fans with live events, limited editions, and advance purchase opportunities, while also appealing to mass market retailers.

Its figures are sold in specialty comic and game stores, as well as in GameStop, Walmart, Target
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, Hot Topic and other national retailers.

Funko has grown its direct-to-consumer sales in recent years, to the point where they accounted for 11% of sales in 2021, up from virtually nothing just a few years ago.

It can use exclusive offerings as a way to steer sales to its own direct channel, or to specific retailers, making it an attractive wholesale partner.

“We have a unique ability to drive foot traffic by exclusive products,” Perlmutter said. If, for example, it releases an exclusive product at Walmart, its fan base will head to Walmart stores en masse. “But we also have the ability to drive foot traffic to us,” he said, allowing Funko to build as strong direct-to-consumer channel as well as a strong wholesale channel.

A key reason for Funko’s longevity and success, Perlmutter said, is the demographics of its fan base.

“We’re selling to an older audience. We’re not selling to kids who are ready to move on to the next thing,” he said. “That audience is buying our products with their own money for their own special occasion. So they’re not waiting for a birthday or Christmas or a holiday. They’re buying it because they want to express their love for whatever that fandom is,” he said.

A second factor, he said, “is the fandom.”

“Whether it’s Squid Game or Golden Girls or Transformers of G.I. Joe, Marvel, Star Wars there’s always something new, and we have developed a platform in which to deliver the fandom that allows our collectors to represent what they love in a way that is very gender neutral.”

While action figures tend to draw more male buyers, Funko’s Pop! Vinyl figures are a rare example that has as many, if not more, female buyers.

In 2017 Funko acquired the collectible backpacks and accessories company Loungefly and added clothing to its assortment to grow its sales from $20 million in 2017 to $140 million last year.

Perlmutter, in his first earnings call as CEO March 3, outlined what he called the four growth pillars he is banking on to drive continued revenue gains. They are: 1) continued innovation in the core collectibles category; 2) revenue diversificaiton through new product categories; 3) continued expansion of the direct-to-consumer platform; and 4) international expansion.

One of the strongest protective moats guarding Funko’s growth is the fact that they pretty much have their niche to themselves.

“Quite simply, no one is operating in the same space of Funko,” the Toy Book’s Zahn said. If an entertainment property, or even another toy company wants a Pop! version of a character, “they have to go to the source,” he said.

Another asset Funko has, according to Zahn, is that Perlmutter understands fans, because he is a collector and fan himself. “Many of the most successful folks in the toy industry are really just big kids themselves,” he said. “Andrew is notoriously a kid that grew up on the Kenner Star Wars toys, and that’s certainly helped to shape his journey,” Zahn said.

Fandom, and staying on top of pop culture “is in our DNA” at Funko, Perlmutter said. “Whereas maybe in a traditional office space people around the water cooler are talking about Sunday’s football game, we’re talking about Squid Game.”