SUBSPAC

The Rundown (6/03/2021)


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Playboy: The Timeless Brand

Nudes Are Old News at Playboy - The New York Times

Playboy is a brand that needs no introduction. It recently went public in after a successful merger with SPAC Mountain Crest Acquisition corp. Since it’s debut Playboy has delivered a massive return of 305.68%. Before its debut Playboy Was undervalued as investors had a hard time overlooking its Legacy business in the money Losing publishing Industry.

The general perception was that Playboy was a dead brand that appealed only to aging baby boomers and had no growth prospects with Millennials and Gen Z. However, this is a misconception Playboy has since pivoted from the Publishing business to become a Lifestyle brand. In the past few years Playboy has done a complete revamp of its brand and business focus to ensure sustainable growth over the medium and long term. Playboy also has a sizable war chest allowing it to spend big and fuel high growth rates in the short to medium term.

Brand strategy

Playboy historically has been a male focused brand. But the company intends to change that and broaden its appeal. The content creation team now consists of 100% women and over 50% of all employees at the company are women. The emphasis on incorporating the female perspective will allow Playboy to broaden its consumer base and male it a more sustainable business in the long-term.

Consumer Product business

Playboy’s business is organised around four fast growing product categories.

(1) Sexual wellness

(2) Style and Apparel

(3) Gaming and Lifestyle

4) Beauty and Grooming

These categories are high growth and fragmented without any clear market leader.

Making it ripe pickings for a brand that is recognizable and differentiated like Playboy.

Sexual wellness is especially suited for this strategy with 95% of Playboy’s sales last year coming from this category.

Revenue models

(1) Direct-to-consumer

(2) Licensing

Direct to consumer

The pandemic saw major gains for Playboy in the D-to-C business. Playboy branded goods represent over $3 billion in annual global sales which the company intends to recapture a larger portion as a strategy going forward. Management believes that shifting towards company-owned products in key categories allows for better control of the brand and consumer experience while driving margins higher. PLBY Group intends to move forward with an in-house fashion brand and expand apparel visibility. The company is currently collaborating with top influencers in the Chinese market to launch lines of women’s apparel. Geographically about 52% of sales are in the United States, while China is the next largest market at 27% of the business suggesting there is more room to expand in the rest of the world.

Licensing

Playboy has a very lucrative licensing business and it is currently one of the top 20 most licensed brands worldwide. The licensing is high-margin and lucrative bringing in high margin contracted cash flows of over $400 million through 2029. At normalized growth rates, the clean-up of old licensing contracts, new business wins and additional M&A, Playboy could finish 2025 with over $400 million in revenues, and with their guided 30% adjusted EBITDA margins would deliver over $120mm in adjusted EBITDA, putting the current valuation around 4x EBITDA. Next year’s projected EBITDA multiple sits around 12x, with potential to be much higher.

Playboy NFT’s

Recently Playboy CEO Ben Kohn announced that the company is planning on monetizing its sizable archive by entering the NFT market. Over 68 years of Iconic covers and over 5000 pieces of art will soon be hitting the NFT Market and is sure to create a lot of buzz. The company sees the NFT market as an avenue to be a potential driver of long-term recurring revenue streams. The current run up in shares is powered by the NFT craze even before the Company has actually offered NFTs of its over 5,000 pieces of art, covers, photography as well as special commissioned pieces with artists like LeRoy Neiman and Andy Warhol. The Company has partnered with Nifty Gateway, an online NFT marketplace, to potentially monetize its archives as well as create new digital assets. PLBY stock may also be influenced by the sales of its NFTs once they launch and any sales that make headlines can impact shares.

Valuation

The strength of the company is its brand awareness. Playboys brand is placed with companies like Coca-Cola and Nike in terms of global awareness. The company is among the 20 most licensed brands in the world with 97% brand awareness. The result is that the company immediacy commands a higher retail premium with limited advertising and marketing requirements.

In terms of the valuation, the current market cap for PLBY at around $1.65 Billion implies a stock trading at a 11x price to sales multiple or 8.25x based on 2021 revenue guidance from the company. The long-term target for the company is to reach $100 million in adjusted EBITDA. This puts the company’s forward EV/EBITDA at 18x, which is reasonable considering the untapped potential market. Given that there is a 35% top-line growth momentum estimated for 2021, the valuation premium that Playboy commands is justified.

Valuation Risks

The main risk to look watch out for is the potential deterioration to the global macroeconomic outlook. The various product segments of the company are in the consumers discretionary sector, which remains highly sensitive to income levels and economic growth. Any setback in the consensus for ending the pandemic would likely pressure the stock and force a reassessment of the growth outlook

Conclusion

2021 will be an important year for the PLBY group to execute its growth strategy and reaffirm its earnings potential. The recent popularity of NFT’s have boosted sentiment towards the stocks, but there is also a bigger underlying growth opportunity in the core business. Nevertheless, the contribution from NFT’s can be positive and adds to the upside potential. Even as shares have climbed significantly since the IPO, investors should stay bullish as there is more upside ahead.

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