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The Thesis in a Nutshell
I initiate my coverage on Playboy (PLBY) with a buy recommendation and a target price of $43.53 per share, implying an upside potential of 153%.
Playboy has transformed itself massively in the past years, and today the company is very different from what you might remember. With the launch of Centerfold in December 2021, I believe PLBY is in an excellent position to become the prime competitor of OnlyFans. Love it or hate it, you have to admit that OnlyFans, a company that is rumored to be valued above $10 billion has created an enormous amount of value for its investors in a very short time.
Most of us know Playboy as a magazine company and life-style brand. Well, the company is still a life-style brand, but not a magazine company anymore. Have you heard of NFTs, the influencer-economy and the Metaverse? That is the value-proposition of the new Playboy. True, the legacy high-margin licensing business and direct-to-customer product sales are still there to drive sustainable cash-flows. But the future of Playboy will build on the push to bring sexual freedom into the metaverse economy. I will talk more about this in the next section.
PLBY Group connects consumers around the world with products, services, and experiences to help them look good, feel good, and have fun. Specifically, PLBY Group serves consumers in four major categories: Sexual Wellness, Style & Apparel, Gaming & Lifestyle, and Beauty & Grooming. PLBY Group’s flagship consumer brand, Playboy, is one of the most recognizable, iconic brands in the world, driving billions of dollars in consumer spending annually across approximately 180 countries. In fact, the Promotique report named Playboy as the 21st most recognizable brand in 2020.
A bet on the new economy
As previously mentioned, Playboy is aiming to leverage its brand to bring sexual freedom into the metaverse. Thus, digitalization and social media will be at the center of the new Playboy.
In December 2021, PLBY launched an important step into this direction by launching Centerfold, a social media platform designed to offer the same value proposition as OnlyFans. Meaning, the platform aspires to be home for the world’s top creators to interact directly with their fans, expand their communities and build their own personal content and commerce businesses — all in the context of creative sexual freedom, artistic expression, and sex positivity. Moreover, Centerfold’s founding creator community is well known and collectively addresses hundreds of millions of social media followers. Hailing from the worlds of music, fashion, fitness and adult entertainment, some of the creators include:
Cardi B, who also serves as the platform’s Founding Creative Director
Plus numerous Playmates including Ashley Hobbs, Carolina Ballesteros, Chasity Samone, Hailee Lautenbach, Yoli Lara, Izabela Guedes, Valerie K and Khrystana
Furthermore, since a few weeks Centerfold processed the first applications from independent creators to join the platform. Indeed, despite still being in its early days, traction is already looking to accelerate. As of today, Centerfold creators can offer personal content subscriptions, the ability to directly message with their fans and more. As the platform continues to expand, the roadmap includes highly sought features in merchandise design, production and distribution capabilities, digital content production, live streaming, blockchain integration and more.
I believe the Playboy company has a long runway for continued brand and product development at the intersection of culture and sex. In fact, what I assume that Playboy ultimately is going to target is a sexual (wellness) experience in the metaverse. It might not match the taste of everybody, but we must admit that the financial opportunities are enormous.
Let us look at the company’s financial performance and financial health, which honestly is not stellar. While the numbers today are not great, the future could be very different. Taking Centerfold as a reference, can this platform make money? Yes, definitely. Just visit Centerfold and before you know you have spent a considerable amount.
Since, December 2020, Playboy’s revenues grew by 67% and the company will likely have reach $200 million for the full financial year 2021. At a market capitalization of $680 million, this implies a multiple of x4 sales. As of Q3 2021, adjusted EBITDA was $5.2 million and net loss was $7.7 million, largely driven by $9.8 million of non-recurring expenses.
Also Playboy’s balance sheet doesn’t convince. First, I note that the company holds approximately 60% of its market capitalization in debt. Second, the cash position of $67.8 million might be insufficient to finance the necessary investments to build Playboy into a OnlyFans competitor. Thirdly, the asset base consists mostly of intangible assets ($418 million) and goodwill ($236.9 million). As an investor, obviously, I would much rather prefer tangible and liquid assets as this would provide a margin-of-safety.
Admittedly, the numbers are not great. But I regard and value Playboy mostly like a Start-Up. Thus, to me the company’s long-term prospects are much more important than the company’s past and current performance and I trust that management will achieve its revenue and profitability targets in the near future. This would imply $300 million in revenues and $100 million of adjusted EBITDA by 2025.
I must say, PLBY is difficult to value since the company is in the early stages of multiple growth opportunities. Thus, many assumptions about market growth, market size, product line expansion and profitability margins are necessary. Furthermore, the business environment of PLBY is connected to considerable uncertainty. Betting on PLBY definitely implies a bullish perspective on the metaverse and NFTs. Nevertheless, I attempted to calculate a Discounted Cash Flow analysis with three possible scenarios. Feel free to think independently and disagree.
As you see, possible valuations for Playboy, given the current knowledge about the company, should be between $11.24 per share and $164.89 per share. Since the latest trading price for PLBY has been quoted at $17.23 per share, the presented opportunity is skewed towards a favorable speculation.
A good reality-check is to look at how other analysts value PLBY. It is good to know that the overall valuation is very bullish, with price targets between $47 – $50 per share.
First, there is obviously a lot of uncertainty and executional risk. Will Playboy manage to successfully compete against OnlyFans? Well, this is difficult to assess. The “new Playboy” hasn’t been around long enough to build a track-record. I think, however, Playboy management is highly able and focused. CEO Ben Kohn apparently really wants to work in service of his shareholders. The following are his own words: “We get judged by the stock price and that’s it, and if we deliver for the shareholders consistently over a long period of time. You know you’ll get rewarded for it, and if you don’t, you won’t, and so I know who my bosses are every day. My boss isn’t me, my bosses are the shareholders.”
Second, I expect shareholders will be diluted in the coming 12-15 month. In my opinion, the company doesn’t have the balance sheet strength to build Playboy into the business that it could be. Thus, an equity recapitalization of $200 – $300 million is not unreasonable.
Finally, investors must stomach lots of stock price volatility. Since PLBY went public via a SPAC merger, the stock has been very volatile: Quickly after the merger, PLBY’s share price shot up 263%, fell down to $21 share, shot up again to $40 per share and fell down again to levels as low as $13.3 per share. But take it as an opportunity. Since PLBY share price is still relatively depressed, now might be an attractive entry point to establish a speculative position.
Conclusion & The Trade
Playboy is one of the world’s most iconic global consumer lifestyle brands with massive global reach. I strongly believe the company is in the leading position to leverage its iconic-brand into the new economy, bringing sexual and artistic freedom into the metaverse. While much of Playboy’s potential must yet be developed, in my opinion, the opportunity to invest in an OnlyFans competitor is highly appealing.
At this point it is worth noting that betting on PLBY is not a value trade. This is a speculation. Notably, as of 01. Feb 2021 the Implied Volatility on PLBY is at 112%. Thus, I would recommend selling covered calls on PLBY and collect rich premium while the growth multi-year growth story further develops.
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