Playboy Update - June 2021

Playboy (PLBY) has been very kind to our model portfolio so far. It's been one of the best-performing SPAC IPO names this year.

They just made a fairly sizable acquisition by buying Honey Birdette, a luxury lingerie brand based in Australia but with a global online business. It's a ~$330M deal of cash and stock for a company that expects to do $73M of revenue and $28M of EBITDA this year. With those numbers, the valuation seems reasonable.

Direct to consumer brands and omnichannel distribution is the king of the current retail trends so I'd say this acquisition is on-point as far as that goes. The HB metrics are already very good in terms of average ticket size ($760) and LTV but they should improve in the US.

They are positioned more in the "lux" category but not quite as crazy as La Perla. High-end lingerie is a popular category with niche brands that include Agent Provocateur, and Simone Pérèle. (I have to say the stuff these guys sell is very impressive.)

HB will also be launching a new swimwear line in the next few weeks as part of their expanding physical presence in Miami that should be very well received.

Some Worries

Playboy now has a few different online and offline brands operating that require some cultivation to ensure clear positioning. Yandy.com sells lingerie but at very low price points like $25. They are more like the old Frederick's of Hollywood which is still in operation. There's also Playboy.com that has their own shop and the acquired Lovers that's much more about sexual "supplies" and accessories.
I've been concerned that the core brand just doesn't work anymore in the US. But as they diversify the brand portfolio this is less of a concern. It's also very strong in other, less developed economies. Finally, I've noted that while the traditional Playboy brand might not work in some areas of the US it may well work in others.
Diversity in the senior ranks is a bit lacking. The message would improve and the market potential will expand if they can address that.

Valuation and Stock Conclusion

With the acquisition, the company will have a $280M business growing 40% that should be reasonably profitable (too soon to distill this down to sustainable operating numbers.)

With 41M shares outstanding pro-forma that puts the market value at $41/share is $1.6B or 6x sales.

I'm not being strict on valuation because I think there is a significant realizable brand value from licensing that can add materially to operating margins over the longer term.

Even so you can see the company generating $100M in operating earnings in a year or two which would put the stock at 16x. That's low relative to their growth rate.

Finally, I think the management team is still proving themselves to investors. They have done well so far and attracted meaningful analyst coverage. They do need to continue to do this well over the next year to assure their institutional appeal.