This article was originally written for SeekingAlpha. Another SA author had written about the new Playboy as being “misunderstood”. Although I agreed that many investors still don’t know that Playboy doesn’t print a magazine, I think the problems of this company lie much deeper than public or investor perception.
I have never owned stock in Playboy; not in the legacy company nor in the latest reincarnation. Until recently — when I bought in at $3.50 and watched it continue to decrease in share price. I bought in again, and will continue to buy until the bottom is reached, or the company implodes. But even without holding stock, I have had a strong interest in and have followed the company for many years. I was always a Playboy fan.
The Playboy Bunny logo is one of the most well-known logos and icons in the world. It is also the most licensed trademark, appearing on every type of merchandise from clothing, to jewelry to perfume. There are “Playboy” licensed stores in various high-end malls around the world selling that licensed merchandise.
Licensing the brand. The original Playboy company understood licensing very well. The “new” Playboy – not so much.
The new Playboy is not like your father’s “Playboy”. The hit reality TV show that premiered in 2005 introduced Playboy to a new demographic – young women. According to various articles on the web, almost 70% of the viewers of the Playboy hit series were women. The brand had never reached that huge demographic before.
As for the stores, Playboy admits that it designs its branded clothing to appeal to 18-25 year-olds. I don’t know if the trendy mall retailers still sell Playboy branded merchandise, but I have watched the traffic enter and exit a Playboy branded store in a foreign country. Every buyer appeared to be under 30; and for the short time I observed, every person entering the store made a purchase. There was never anything “adult” or explicit to the Playboy merchandise sold in these Playboy stores.
Playboy does not own any of the “lifestyle” stores. It LICENSES them to other companies who know retail. Playboy has no experience in the retail environment. This statement of fact plays an important theme in this article.
Guess where you could NOT buy Playboy merchandise? Under the legacy company, manufacturers and distributors of Playboy branded products were prohibited from selling to any “adult-oriented” store. According to all reports, Hugh Hefner was against the idea of Playboy items being sold in “adult” stores.
Seems hypocritical on the surface, until you realize that Playboy intended to be marketed to the masses to generate sales and profits necessary to grow the company, and never wanted to be branded an “adult” company. An interesting point to remember as we proceed.
In 1971, Playboy went public for the first time. Hefner’s company was allegedly valued (pre-stock issuance) at $200 million (USD). The go-public price was about $23 (or about $120 in 2022 terms). It wasn’t able to hold at the initial price. 1.2 million shares were sold. It peaked above $33, and then dropped gradually until about $5 per share.
Then in 2011, Hef (with help and $180 million in loans) took the company private at $6.15 per share with a value of about $207 million (USD). Revenue at the time was less than $200 million (USD). The company was private until after Hef’s death. In 2016, a “for sale” sign was hung on the Playboy company, with an asking price of $500 million. News reports indicated that the company revenue had dropped to $100 million. There were no takers.
In 2018, after Hef’s death, his estate sold his remaining stock in Playboy for a million dollars per percent of ownership. In my convoluted math, that valued the company at about $100 million.
In 2021, Playboy again went public as PLBY, by merging with a SPAC. Playboy received upwards of $108 million of “unrestricted cash”. The $10 stock peaked at $63 per share in May of 2021, and began its painful drop to today’s low of $2.55 per share*. In other words, the “new” PLBY is now worth less than half of the “old” Playboy when it was taken private. No one in charge of this company should be proud.
I am going to skip over the acquisition of a new multi-million dollar bunny-jet, the first major purchase PLBY management made. Unsurprisingly to investors, PLBY was forced to sell the badly-timed purchase to cover cash flow concerns. What bothers me the most is that no one stood up and said, “Hey, is it really a good idea for us to buy a jet?” There was no one in the office that thought this was a bad idea? This is my first example of mismanagement.**
YANDY
In 2019, Playboy bought Yandy – an online Halloween costume and lingerie ecommerce portal. Yandy was losing money every year on more than $42 million in sales and was $18 million in debt. Playboy called it “a bargain” in official releases – although I doubt they publicly made that statement again after Covid shut down Halloween and Yandy’s sales allegedly tanked.
Shortly after the acquisition was completed, Playboy was forced to enter into a 10 year lease for a 51,000 foot warehouse because Yandy’s lease was expiring. The owners of Yandy ostensibly decided to sell the company when the lease was at the walk-away date. PLBY then entered into a 10-year lease for a money-losing enterprise, which increased PLBY debt and obligations.
Yandy’s sales are not broken out separately in any of the filings I could find so there is no way to know just how bad of an investment this really was. In the most recent filing (11/9/22), there is one quick reference made to the “operating losses” of Yandy.
Why do I think this was a bad acquisition? Yandy contributed nothing to the furtherance of the brand. Although it increased revenue (which is the CEO’s goal), but at a high cost to the company. Second, Playboy was forced into entering long-term leases for a company that was losing money before and after being bought by Playboy.
Third, excluding revenue and losses, Yandy contributed nothing positive to the company. Playboy was not prepared to supply branded swimwear or lingerie, nor had it worked with the existing manufacturers to private label the packaging sold through Yandy. Although Playboy did add some branded items to the Yandy catalog later, it most likely did not help materially and Playboy did not use its volume buying power to obtain merchandise at a lower cost.
And lastly, Yandy’s sales were 60-70% costume, with the remainder being lingerie. Playboy changed the website to feature lingerie, providing one small link to “costumes” at the top of the page. There is no way I can see that these changes improved sales.
As of now, Yandy is not integrated into PLBY and is still a stand-alone, self-managed entity. My second example of mismanagement.
TLA ACQUISITION
TLA, aka Peekay, aka Lovers, aka Lover’s Package, aka … well, I’m sure you understand. Trying to keep all the names straight in this section is going to be difficult because the company names and ownership information have morphed over the years. SEC filings listed 15+ different company names.
Peekay Boutiques, et al, owned boutique adult stores in multiple states. On paper, they merged three other small store brands into the new company, and then attempted to go public, without a cohesive “one-brand” plan. What happened next should be required reading for anyone wanted to take a company public as the mistakes continued to add up with everything they did. I followed them from day one and they never made it to the market.
They had so much overhead and debt, that a three-decade old highly successful adult store chain couldn’t pay the interest on the debt. The company was earning gross revenue of $41 million. Based on industry averages for net income for a legacy company like this, Peekay should have earned net revenue of $6-8 million annually. Peekay was a cash cow for decades when operated by the original family.
Earnings before the attempt to go public were not released as it had been a private company. But the “new” company was now saddled with $52 million in debt. The only step left was bankruptcy. Surprisingly the deal didn’t raise the suspicion of federal regulators or investigators.
The secured creditor retained the stores after the bankruptcy, and then sold the remaining company and stores in early 2021 to PLBY for just under $25 million, a much more realistic value, which was expected to generate a reported $45 million in revenue.
Playboy spent $25 million to net $6-8 million net revenue annually? That is not a bad deal. Except that PLBY had not taken over the company and it is still being run by the same people as before the purchase. PLBY has not integrated the acquisition into the Playboy fold.
This acquisition surprised me the most. Why? Because Playboy (legacy or new) has never had experience in operating stores in the retail environment – much less, the “ADULT RETAIL ENVIRONMENT”. Even Hefner was adamantly against adult retail. The new management may be all for it, but they have no experience and do not appear to have a plan. Are you shopping at Playboy when you visit these stores? No, you are shopping at whatever name is still on the door (such as “Lovers”, “Con-Rev”, “Christal’s” and others) and will most likely NOT find any Playboy branded merchandise on display.
Playboy management didn’t learn anything from the Yandy acquisition. Playboy isn’t producing or supplying lingerie to stores it purchased. And from public statements, they intend to substantially reduce the well-known brands being sold in the stores and substitute “private labeled” items in order to capture additional profit.
That statement alone was a key indicator that Playboy does not understand the workings of the adult retail environment nor do they realize that they need to be a 250+ single-branded store powerhouse instead of a 40 store regional chain with half-a-dozen different nameplates. Playboy just doesn’t “get it”.
And the time for this expansion is now as the goal is completely reachable. Most adult store chains of 30-60 stores (in the USA), have been in business for 3-5 decades and are family owned. Current owners are aging out and are looking for the opportunity to cash out and see their cherished stores continue on without them.
PLBY could be something that no adult store chain has ever accomplished – a nationwide powerhouse. But PLBY doesn’t seem to know what to do with adult and is ostensibly not looking into this goldmine.
The inference is that PLBY is going to neuter these stores and made them less adult, and more like lingerie stores. In my mind, what I see as their vision, is a combination of mall-retailer Spencer’s Gifts and the former Fredericks of Hollywood. Without adult products, these stores stop being “destination” stores and revenue will decrease substantially. The Lover’s purchase contributed nothing to the furtherance of the brand – but it did generate well-needed PROFIT.
Two years after the purchase, Lover’s still operates with no integration into Playboy.
But it was the next acquisition that made it clear that CEO Ben Kohn is doing whatever he wants rather than what the investors want and expect.
HONEY BIRDETTE
In late 2021, PLBY surprised us again and made the most questionable purchase to date. PLBY decided to purchase Australian lingerie manufacturer and retailer Honey Birdette and their 59 lingerie stores located mostly in premium high-cost malls in Australia.
The acquisition cost $333 million and would provide only $73 million in revenue and $17 million in net revenue. With a potential 20 year payback, I don’t see it as a good deal from any angle. To make the sale happen, PLBY tapped into more loans, increasing current indebtedness to $230 million.
Why do I think this was a terrible acquisition? My first concern were the financial terms. Just the cost vs earnings should have made every person in the room vote no – but it didn’t (provided of course, that there IS a room with people who VOTE).
Second, there are an untold number of factories that would have bent over backwards to manufacture high-quality, low-cost (ie: high margin), Playboy branded & labeled lingerie for a fraction of the Birdette investment.
Third, Playboy allegedly bought Honey Birdette because of the brand name. If that is true, then who is Playboy? Are you shopping at Honey Birdette or at Playboy?
This is why I keep saying the management team doesn’t understand brand management. The brand to push is PLAYBOY – a well-known bunny; not a bird from Australia.
Other countries also love Playboy and the Playboy brand. In fact, international represents Playboy’s largest growth. Are these fans going to be excited about “Honey Birdette” lingerie? No. They are looking for the Playboy brand.
When I walk into a Playboy store, I know exactly where I am and what to expect. But Honey Birdette?? This was the biggest example of mismanagement that I see.
DREAM ACQUISITION
Playboy allegedly purchased Dream to provide the infrastructure and support for its “Only-Fans” type product called “Centerfolds”. Playboy paid $30 million mostly in stock to acquire Dream. I think Playboy could do well as an Only Fans competitor if they set the offering correctly. Sadly, I don’t think they will do so. The more I researched, the more I realized they are not going to compete against Only Fans.
Based on what I am seeing in their other aspects of running the company, I am not so sure they will pull it off without years of mistakes. To compete, working with the Playboy offering would need to be quick and easy, something that Playboy as a company is now known for offering. It also remains to be seen how restrictive Playboy will be in what content is allowed on their platform. The “terms and conditions for creators” was taken down from the website one month after it was uploaded, so as of now, no one knows.
In fact, the promo for Playboy’s “Only Fans” knock off product says it will be for “the world’s top creators to interact directly with their fans”. That statement alone is completely contrary to the way Only Fans operates. Only Fans lets anyone be a creator – where Playboy is limiting it to “the world’s top creators” (ie: Cardi B and others).
Playboy is also making noise about integrating their editorial content into the subscriptions. I don’t see it generating even a small percentage of the revenue that Only Fans generates. I think PLBY is misleading investors with the true direction of the “Dream/Centerfolds” project. And to the best of my knowledge and research, people who subscribe to OnlyFans content aren’t looking to “read the articles”.
Playboy is not misunderstood by the public or by investors, and right now investors don’t see value in the path that PLBY has chosen to take. Debt is out of control, losses are adding up, cash flow has tanked, share prices continue to drop, and they are still talking about plans that will cost even more.
According to the earnings calls, Playboy intends to pull back licensing agreements so that PLBY can sell the logo-bearing merchandise directly. That makes the unbelievable assumption that Playboy has enough sales outlets and distribution systems to actually move enough product to make more money than the licensing deals generate.
Playboy should have grown their revenue organically and not tried to “purchase revenue”. In the earnings call, PLBY was happy that direct-to-consumer revenue has grown 88%. There was no discussion about how profitable this increase was or how much loss it actually contributed to the bottom line. They continued to reference the “organic growth” they were expecting to see, while ignoring the fact that all the growth so far has been through purchased revenue.
The earnings call also touted the integrations of Yandy and TLA into Playboy yet they glide right over any hard data, so it is impossible for an investor to view numbers that support those glowing statements.
I was able to find reference later that their statement of “integrating” the acquisitions meant that PLBY was investigating a new back-end stock management system that all of the company would utilize.
As Shania Twain sings in Lafayette, Louisiana, “That Don’t Impress Me Much”
Based on the numbers that are available, the company seems top-heavy with expenses. They obtained no synergies in the acquisitions to date, and continue to have offices in various states in the US as well as other countries – only because that is where the offices were originally located. It doesn’t appear to me that there is anyone trying to control spending and pursue profit instead of gross revenue.
Yandy is still run out of Phoenix, TLA from Washington state, and Birdette from Australia. Each of them is a separate entity and has their own management structure and duplicate staffing. PLBY is treating these acquisitions with a “hands-off” style, making me wonder if PLBY views these divisions as licensed operations rather than solely owned subsidiaries. But they are NOT licensed.
Licensing is highly profitable
The licensing arm of Playboy should have been a low-cost, low-overhead division of the company without the need for extensive staffing or offices. There should be substantial profit flowing to the bottom line from the licensing group that should serve as the basis for operations.
The acquisitions should be shoring up the bottom line. That should have been one of the most important reasons to make the acquisition. But that is not what is happening. PLBY is losing money faster than it is spending “Daddy’s” money.
With these poorly thought out acquisitions, PLAYBOY did what it said – it grew revenue but at a substantial cost that investors aren’t happy with.
I think PLBY is mismanaged – and I think current management are in over their heads. They need someone in their internal meetings willing to object and argue against some of the decisions that have been implemented, but it doesn’t seem like there is such a person. In other words, they need an adult in the board room, not on the golf course.
Purchasing revenue at all costs was not – and is not – the way to grow Playboy – it should have been slow and easy organic growth, capitalizing on everything that Playboy had as well as the brand recognition that differentiates Playboy.
Centerfolds and Dream was supposed to be the holy grail for the company, but I don’t see it getting the content creators or the gross sales that PLBY management says it will. It is going to be too restrictive and likely a vanilla version of a cam show that has no explicit content. In my opinion, management and CEO Ben Kohn appear to be creating an online version of the old legacy Playboy magazine – and are going to let content creators supply the photos!!
And that tells me they do NOT know what they are doing.
In the end, Playboy isn’t going to fold. They will survive. But I don’t see the stock ever climbing above $6-8 per share, and even that is years away. I plan to buy a few more shares as the price drops and keep them in my speculative pool.
It is easy for me as I did not invest in PLBY when it was $50 per share.
Playboy could be a cash-rich and highly profitable company. But it is not. I can only see one reason – Mismanagement.
Without question, the current CEO needs to go. But the entire high-level management team needs to be changed as well. It is under their watch that these bad decisions went from bad idea to bad execution. This team does not have the long-term interest of shareholders at heart. I think current share price demonstrates that.
Update to this article: In November of 2022, Playboy (PLBY) announced a private labeled lingerie brand and in December of 2022, Playboy (PLBY) announced a private labeled jeans brand called “Playboy Denim”. This was the first of what I hope is the beginning of good news to come. However …
Playboy didn’t buy a “blue jeans” company. They found a manufacturer and produced private labeled blue jeans with the Playboy logo. So my question is still – why did they feel the need to spend $333 million dollars to buy an Australian lingerie brand when the goal should have ALWAYS been Playboy-branded lingerie.
Even though I like positive news, I still do not have faith in this CEO or his management sheeple. As an investor, I believe Ben Kohn needs to go.
In just over a week, on March 16, 2023, PLBY is expected to have a conference call with investors and the public to discuss both fourth quarter 2022 results, and a financial overview of the fiscal year ending 2022.
Note:
*price when this was originally drafted. PLBY closed at $2.01 per share on 3/6/23.
**I must give partial credit though, as two things happened because of the jet purchase. PLBY did sell the plane, and somehow made a profit. And buying the new “bunny” in the sky, did generate millions of dollars of media coverage. In the end, I don’t believe that the positives outweighed the negatives and I still rate it as a bad management decision because of the appearance of waste.
Disclosure: I own shares of PLBY. I wrote this article myself, and it expresses my opinions. I have no business relationship with PLBY. The article was written to assist in research while encouraging discussion.
Additional Disclosure: I own and operate adult retail stores, and have done so continuously since 1991. I have 31+ years in adult retail. All trademarks are the property of their respective owners.
The Old Guy
In April of 2023, PLBY sold Yandy for $3 million USD; a $10 million USD LOSS to the company in 3 years. Plus, it is believed that PLBY is still on the hook for the warehouse leases it entered into the year it bought Yandy.
In May of 2023, PLBY announced that it was trying to find a way to DUMP Lovers and Birdette!!
“As part of this process, the Board is considering a full range of strategic alternatives. The Company has retained the Sage Group to assist with the Lovers process and Moelis & Company to assist with the Honey Birdette process.”