PLBY remains one of the most powerful Tail Long ideas in all of consumer. The quarter was solid including a revenue beat despite some DTC out of stocks due to Covid supply chain disruptions, EBITDA came in ahead of consensus even with the company leaving in some $1.5mm in M&A & Covid charges. However, this event was not about the quarter, but rather about the reads in brand and business momentum as well as what new plans management has to turn one of the most well-known brands in the world into a global business with revenue and profits to match that brand's reach. On that front this quarter did not disappoint.
CEO Ben Kohn reiterated the team’s focus on superior long term growth and driving significant returns over a 3-5 year time horizon. He highlighted the continued DTC strength in the business which grew 114%. He also shared detail on who the real PLBY consumer is noting that ecommerce Playboy shoppers are 80% under the age of 44, 60% under the age of 34 and 55% of them are female. For those that think Playboy only has relevance for old men as a magazine, be aware that this brand has been reinventing itself with a whole different customer in a whole different generation, but still rooted in some of the brand’s core principles of freedom of speech, freedom of expression, and freedom of sexuality.
As for business developments:
- PLBY renegotiated its prior beauty license to reclaim several category rights that belonged to its now fragrance only licensee. This means the company can develop and launch products in cosmetics, grooming, skincare, and bath. Color cosmetics are already in the works with a planned launch in 2022. This is in-line with our thesis that the company will revisit license deals, take business rights back, or get better terms by being creative in the negotiations as opposed to ‘strong arming’ for more money. In this case the fragrance partner is likely getting contract extension for a hot brand where the brand owner is about to invest more heavily in brand relevance in the category. It should be a win win. Given the business change, management also noted that the beauty revenue outlook is "multiples ahead" of its prior 5 year targets.
- Management talked about the Big Bunny Jet as a marketing tool highlighting an aspirational lifestyle and living life to its fullest. We think it can be a unique marketing asset. Perhaps more exciting is the announcement that the company will be launching a Big Bunny product line that will come out in 4Q. Products will include fashion, travel accessories and other categories. We suspect this will be a premium, elevated offering at higher prices and higher margins. Playboy is already executing brand/product tiering which other best in class global brands (like Nike) have demonstrated is the right method for large scale growth while preserving exclusivity and consumer desire.
- Lastly is NFTs, where Brand Chief Rachel Webber made it clear NFTs is way more than NFTs. Playboy is being a first mover into a budding digital content ecosystem built around blockchain technology. This was evidenced by the successful NFT launch with SlimeSunday, and the corresponding metaverse launch party. If the last few sentences confused you, you might want to check out blockchain content. A decade from now we could be looking back and realize what is happening right now in NFTs and beyond as analogous to the ridiculous idea of people buy things online in the mid 1990s. Playboy clearly wants to be sure that if blockchain and corresponding technologies launch the next big consumer content market, it will be a leader and first mover in the industry. If digital content and digital experiences seems like a stretch to you, keep in mind that the next generation of shopper is one that thinks of the world as one where photos are on a phone not developed from film, books are on a screen not printed on paper, and movies are streamed from the cloud. Consuming other consumer content in digital form is not a leap, it’s a baby step.
Yesterday we presented our TAIL call on PLBY, and how we get to a $250 stock over a TAIL duration. For the slide deck and replay link CLICK HERE. Arguably the most important slide is the one below, where we add up the different initiatives on PLBY’s plate as it transforms the company, and assign and equity value on end-market demand to each initiative under a bear, base and bull case outcome. The punchline is that at the midpoint, we get to approximately $14.7bn in market cap, which is about 800% upside from today’s $1.55bn. Even at the low-end -- i.e. the company grossly underperforming our expectations -- you're looking at well over 200% upside. And note that NFTs are not listed. We can't quantify the true value opportunity of the category today. It could be small, or it could be massive. If it's the latter, it seems PLBY will be one of the big share winners.
Do the numbers in the press release tell you why the company should be worth billions? No. But if you take a step back and listen to how the team is transforming a brand with nearly 7 decades of history and global recognition into a real powerhouse consumer business, we think the value can clearly be seen.
Buy the dip.
