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HARRISON MILLER

Funko CEO: Collectibles Giant Taps This NFT Niche To Fuel Growth

Pop culture collectibles giant Funko bets that non-fungible tokens (NFTs) are here to stay, despite the dramatic drop in market value. The company behind Funko Pop! vinyl figures has an ambitious goal of doubling its revenue to $2 billion by 2026. And Funko plans to expand its NFT offerings to help reach that target.

CEO Andrew Perlmutter says younger people today are more interested in digital investments and assets. "My kids always want the latest Fortnite avatar skin or gun," Perlmutter said. "So the way they view digital assets is different from how we dinosaurs view them."

Perlmutter admits he's not a real expert on the space, but says there's value for expanding its fan base.

Last April, Funko purchased a 51% stake in TokenWave, the developer behind NFT showcasing and tracking platform TokenHead. TokenHead's app allows users to display their NFT holdings, track their value and has a number of features for buyers and sellers, including authenticity verification.

"We knew that it just made sense for our brand to be in the NFT business … . It's people collecting digital assets," Perlmutter said.

Popping Into NFTs

Funko launched their first lines of NFTs last August when the total market volume was around $3.6 billion. While high-profile NFT collections like Bored Ape Yacht Club and CryptoPunks have made headlines for eye-popping prices, Funko took the trading card approach. Funko sells NFT packs for $9.99 that include five digital collectibles, or packs of 15 for $29.99.

But the market for NFTs dropped off dramatically this year as the price of cryptocurrencies plummeted. The monthly NFT marketplace volume fell to $501 million in August from its highs of $5.6 billion in January 2022. And it only dropped further in September, totaling just over $202 million halfway through the month.

That hasn't hurt Funko though, thanks to the company's strong fan base and affordable price point.

Funko has enjoyed a strong reception to its NFT launches. Many of their NFT series are redeemable for physical Funko Pops!, their flagship segment of vinyl figures. Collectors have been buying them up for limited edition "chase" sets. They've also seen an influx of customers who have never purchased a Funko Pop! but are interested in NFTs, Perlmutter said.

"Twenty straight drops, 20 straight sellouts," owner and Chief Creative Officer Brian Mariotti said at Funko's press day Tuesday. "[We're] the only company in the world that is really taking the strategy of 'digital meets physical,' taking digital NFTs and putting real, rare physical products along with them."

Funko had a waitlist of 500,000 people for its first DC Comics NFT drop. And last week's release of the DC Comic Series 2 line marked Funko's largest revenue day for NFT sales. About 35% to 40% of its NFT sales come from outside the U.S., further fueling Funko's international expansion goals. The company is also looking to grow its presence in China, Asia, South and Latin America.

Digital Direction

Funko is exploring different ways to grow its marketplace, expand its licensing brand, gamify products, add utility to its NFTs and bring them to market. "Whether it's through open sea and open auction, meets experience (sic), meets physical (sic)," Mariotti said. He didn't clarify if open sea referred to partnering with OpenSea, the largest NFT marketplace platform. Funko NFT collectibles are currently purchased through the Droppp Platform, built on the WAX blockchain.

Funko did not respond to confirm if it was working on an OpenSea integration by the time of publication.

"We have some more innovation in this space, including a new strategy we're really excited about to bring at the end of the year," Mariotti said. "Again, early days in that space. We've been hyper-successful so far, but tons of innovation [is] going on in the back end as we continue to invest in that business as well."

Finding The Fans

Funko's mantra is about meeting customers where they are and fulfilling their interests, Perlmutter says.

Funko has found success through strategic acquisitions of strong brands that have an overlapping customer base.

The company acquired lifestyle and apparel company LoungeFly in 2017. LoungeFly revenue grew from $17 million in 2017 to $208 million over the last 12 months. And in June, Funko acquired high-end memorabilia company Mondo for $14 million. Perlmutter says there's a large audience for high-end posters, art, vinyl records and other memorabilia.

That same thinking led them to launch their line of mobile games and upcoming AAA action-platformer video game. And Funko is seeking ways to expand its IP over different content platforms.

"We've been exploring whether, 'is it a movie, is it a streaming TV show, is it a video game?' And I think the answer will eventually be all of the above," Perlmutter said. "But this is a really unique opportunity for us to bring that Funko license to IP, that our fans around the world love, into the video game space.

He mentioned Funko is in talks with some major streaming services, but couldn't disclose more information at the time.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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