Funko vs. Dolphin Entertainment: Which NFT Stock Is a Better Buy?

NFT, or non-fungible token, sales volume surged to $2.5 billion in the first half of 2021 and are on track to reach $20 billion by the end of this year. This high-growth vertical is still at a nascent stage and is set to expand at a rapid clip over the upcoming decade.

As the NFT industry has surged, stocks such as Funko (FNKO) and Dolphin Entertainment (DLPN) have become enticing bets. While Funko stock has almost doubled year to date (YTD), shares of Dolphin Entertainment are up 200% in 2021.

Between these two, let’s see which stock can successfully gain traction in the NFT market and deliver market beating returns to investors going forward.

The bull case for Funko

Valued at a market cap of $933 million, Funko provides connection to pop culture with a product line that include vinyl figures, action toys, apparel, board games and accessories among others. It has licensed over 1,000 active providers with 200 content providers, allowing the company to increase sales from $516 million in 2017 to $652 million in 2020.

Funko stock gained over 10% on November 5 after the company reported its Q3 results. Its net sales increased 40% year over year to $267.7 million in Q3 while net income rose 18% to $18.4 million. It reported an adjusted earnings per share of $0.39, compared to $0.31 in the year-ago period. Analysts forecast Funko to report sales of $240.74 million and adjusted earnings of $0.27 in Q3 of 2021.

Earlier this year, Funko disclosed it signed a deal to purchase a stake in TokenHead which is a platform that tracks NFTs. Funko aims to leverage its expertise in the collectibles space to position itself as a market leader in NFTs.

The company is forecast to increase sales by 41.3% to $922 million in 2021 and by 7.2% to $989 million in 2022. Its adjusted earnings are forecast to rise from $0.37 in 2020 to $1.34 in 2022.

The bull case for Dolphin Entertainment

Dolphin Entertainment operates as an entertainment marketing and premium content development company in the U.S. It has two business segments that include:

• Entertainment Publicity and Marketing: This offers public relations, entertainment content marketing, strategic communications, social media and digital marketing services, among others.
• Content Production: The business produces and distributes feature films and digital content as well as provides marketing and publicity services to companies

Dolphin Entertainment recently announced a partnership with FTX which is one of the largest cryptocurrency exchanges in the world. It aims to leverage the FTX platform to launch a large-scale collectible business with major partners.

The two companies will develop and program NFT marketplaces that will target several Dolphin verticals such as sports, film, television, music, gaming, and lifestyle.

Dolphin has a market cap of $83 million.  Analysts expect sales to rise by 47% to $35.4 million in 2021 and by 31% to $46.3 million in 2022. Its bottom line is also expected to improve from a loss per share of $0.35 in 2020 to $0.44 in 2022.

The final takeaway

Both Funko and Dolphin Entertainment are reasonably valued and have significant upside potential from current levels. Dolphin Entertainment is forecast to gain 200% while Funko stock might rise by 30% in the next year, according to consensus estimates. But Funko is a much larger company that is trading at a lower forward price to sales multiple, compared to Dolphin, which I believe makes Funko a much better bet for investors with a lower risk appetite.

FNKO shares were unchanged in after-hours trading Tuesday. Year-to-date, FNKO has gained 78.42%, versus a 26.23% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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