2023-04-03 20:57:53 ET
Summary
- PLBY Group has recently pivoted its business model from the one that it was pursuing when it first re-entered the public markets.
- The new business model doubles down on licensing as well as building out a direct-to-consumer digital creator platform.
- The CEO makes clear that this is a more cash-centric and asset light model that makes more sense for the company at the moment.
- Yet, we must consider that there are material headwinds working against this strategy - just as there were with the prior business model.
- The financials are as yet unclear and the body of alternative factors create an uncertain situation as well as a hold rating for this stock.
Overview
It turns out that Playboy is a stock. PLBY Group ( PLBY ) is the owner and operator of the eponymous magazine and its associated elements. While continuing to be a well-known company, I believe that many perceive Playboy to be past its heyday – this ain’t the '80s anymore. However, we should never judge a book by its cover. This article will review Playboy’s financials to see if its doing well – or just playing around.
Starting with some high level context, Playboy has spent most of the last decade as a private company. This is in contrast to its operating history, since it had been public for almost 40 years (from 1973 to 2011). Founder Hugh Hefner took it private in Q1 of 2011 with private equity backing. After he passed away in 2017, a new CEO – Ben Kohn – took the reins. Ben had already been acting in an interim CEO capacity since Q1 of 2016.
In Q4 2020, Playboy went public again via a SPAC merger with Mountain Crest Acquisition Corporation. PLBY stock initially saw significant appreciation, well in excess of the S&P 500, but has cratered to a price return far below the index over this past year.
This appeared to be catalyzed by a miss on revenue and non-GAAP EPS for Q1 2022.
This article will review Playboy’s business and financial statements since its reentry into the public markets.
Business
The first thing to note is that Playboy Magazine is no longer in circulation – the company stopped printing and distributing it back in Q1 of 2020. While catalyzed by the pandemic, this was also quite likely due to longer-term forces that have been weighing down on print media for some time. Since this was the historical core of Playboy’s business, it makes sense for prospective investors to reevaluate how this company is now earning money.
Looking at the investor presentation from the SPAC merger , we can note that Playboy’s business is now broken down into 4 segments: sexual wellness, style & apparel, gaming & lifestyle, and beauty & grooming. While this is good for context, it must be noted by investors that the company actively made a decision to pivot away from this full-spectrum model to one that is much more asset light. The company unwound its inventory and wrote down a significant portion of these businesses back in Q3 2022.
Notably none of these involve selling advertisements against media space. Instead, I would liken it to a larger scale ‘influencer’ business model; the Playboy brand is leveraged to drive sales and margin across what might otherwise be commoditized offerings. The footprint here is already quite diversified as to product base and includes direct-to-consumer sales, distribution into retail channels, and licensing. As described by the CEO, the focus is now much more on licensing rather than distributing physical goods as of Q3 2022.
Financials
Revenue has grown overall over the last 10 quarters, now standing at roughly double what it was back in Q2 of 2020. These figures are highly volatile and there are plenty of down quarters; as such, it is difficult to establish a clear trendline or base rate for this business.
Furthermore, we should note that Q4 seems to generally be the best-selling quarter for Playboy. It is then concerning that the most recent Q4 – 2022 – underperformed quite a bit relative to the last one. Nonetheless, the numbers there were still solid. Additionally 2022 appeared to be quite stable in terms of revenues , with variance materially lower than it had been previously.
I think these revenue figures show promise. As to profit, the picture is more simple – there aren’t any. The upshot here is that Playboy was able to generate a positive net income for two quarters out of the last ten, thus proving its business model. The figure was Q3 2022 was affected negatively by restructuring and inventory write-downs for one of the entities owned by Playboy, Honey Birdette (luxury lingerie). These figures are also too volatile to extrapolate out for now.
Looking past the revenues and profitability, we surprisingly find that Playboy has generated positive free cash flow for the previous two quarters. While these figures are volatile just like the rest, it seems that the firm has been cash flow positive more often than it has been profitable; I would consider that a good thing.
This is better contextualized as being part of a new strategy by management that is significantly more focused on cash flow. The restructuring/inventory write-down cost that you saw for Q3 2022 was the company pivoting away from an inventory model to one that is asset-light. The goal is to leverage the Playboy brand to drive licensing and creator partnerships.
I think this pivot makes sense for the assets that Playboy holds, and it is a sensible time macroeconomically to make this adjustment. Readers can also note the re-launch of the creator platform, which provides direct-to-creator subscriptions akin to OnlyFans. The metrics cited by the CEO above indicate that it is coming up to speed rapidly.
Idiosyncratic Factors
There are two distinct things that I would like to note about Playboy. The first is that it is a company now being ran by a seasoned private equity operator focused on cash flow. Reading through the earnings call it seems that he has a nuanced understanding of financial as well as media business concepts. The recent decision to pivot into a more cash-centric operating model also resonates with me as a good decision. According to the document initially reviewed in this article he also was able to generate superior returns during his 25 year career.
Playboy Investor Presentation
The next idiosyncratic factor is what I consider the most significant: Playboy’s brand. Playboy’s brand is undoubtedly one of the best known in all of business. Yet, it is also evident that it must be repurposed into a different landscape than the one in which it flourished previously. As per the latest earnings transcript, it appears that the company has traction in this regard. The report states that 2/3 of Playboy's audience is under 34 years old and that there is a 90% level of brand awareness amongst Gen Z.
I would note, however, that the ongoing formation of this brand is far from a done deal; the jury is still out on what the Playboy brand really is. Playboy comes with a lot of history, and it’s quite likely that many consumers have preformed notions of what it is or isn’t; marketing can’t work magic. As such I think the brand is both an asset and a liability for the firm – and it’s down to management to see which side of the coin prevails. Since licensing is now one of the two core elements of the firm’s strategy, this dimension is that much more important.
Conclusion
The early stages of Playboy’s pivot are promising. I’ll reiterate my belief that there is an air of professionalism and competence around the CEO that I think will do well for the firm. The next quarter’s earnings reports are going to be particularly interesting as the creator platform (Centerfold) is now coming online in earnest. Preliminary alternative data indicates that the Playboy creator platform is doing well and has continued to scale. This could very well lead to a beat on earnings in the company’s next filing.
As a coda to all of this, Playboy was also able to raise $65M in capital through offering additional shares. The CEO and the private equity firm that has been most involved to date doubled down.
The numbers don't tell a story here and there are a lot of countervailing alternative factors to consider. The company’s strategy is now heavily reliant on licensing its brand – a double sided coin, as mentioned – as well as building out a platform that will directly compete with industry goliath OnlyFans. This business model as such has potential but is fraught with risks as well as serious competition. Considering all of this, I am going to call it a hold.
For further details see:
PLBY Group: Business Pivot Has Potential, But It's Far From Proven