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$PLBY: THE CENTERFOLD THESIS

Updated: Oct 18, 2021

A lot has changed since the last century, phones, cars, computers, you name it, it has changed. Playboy, however, may have been an exception, up until now.


Playboy is a brand that needs little introduction, as the 17th most licensed brand in the world, you've probably come across the brand in one way or another. Whether it was their feature in The Fresh Prince of Bel-Air, the Playboy Mansion's notoriety, or the traditional magazine business, you've probably come across them.


Since Hugh Hefner's passing, the brand has undergone some of its first material changes towards remaining competitive in today's market. Ben Kohn, the current CEO of PLBY Group, has a much more savvy mindset towards business than the late Hugh Hefner (who licensed the brand to Chinese manufacturers for 2%... an underwhelming deal that has only been recently restructured). The brand has made efforts to bring merchandise in-house, building a DTC business, the magazine was recently canceled, and the PLBY Group is shifting its branding towards sexual wellness (including lingerie brands and their recent $333MM acquisition of Honey Birdette). In short, changes are being made.


Up to this point in my research of the company, I felt that it was a decent investment in the name of a brand comeback at best. Ben Kohn had a good analogy in an interview that I think summarizes the thesis up to this point well "Burberry used to be the brand that was your grandfather's coat", to go on and further imply that Playboy's "grandfather's coat" days are now behind it, (not verbatim, but generally what he said). Do I think this is interesting? Sure, but do I think DTC merchandise, lingerie, and other sexual wellness investments are necessarily worth the opportunity cost in capital at the current ~$930MM valuation? No, no, and yes, in that order.


Introducing Centerfold


If you kept up with the godforsaken year that 2020 was, you'd be familiar with the "over pandemic" rise to glory that creator platform OnlyFans has achieved. In short, fans subscribe to see subscription-only content from creators of their choice, and OnlyFans takes a 20% cut of the total revenues. According to an OnlyFans pitch deck, the brand had 7 million+ monthly spending fans in 2020 recording net revenue (the 20% cut) of $375MM and FCF of $150MM, and in 2021 this net revenue number has supposedly grown to $1.2Bn with $620MM in FCF.


Now, this business sounds a bit more interesting. Enter, Playboy.


Announced in late September through this Instagram post, Playboy has official plans to compete with OnlyFans in the creator platform space. Now this, is where I think the Playboy investment and thesis becomes interesting.


Posted on September 21st, this Playboy announcement of Centerfold had considerably higher interaction than most of the brand's other posts.


In my opinion, Playboy is the perfect competitor for the behemoth OnlyFans. The business model revolves around a network effect, which requires both fans and creators. In this particular network, it follows a "hub and spoke" model. The hubs being the creators, bringing in the fans. In my previous calls with the CFO of a small-cap software company with a similar hub and spoke model, I was told that the best way to build a network of the kind is to "have the suppliers first" (in this case, the hubs or creators). If you can get the creators to your platform, you can provide a great experience from day 1 to the fans.


Before I finish this sentence, care to guess why I believe Playboy is perfect for executing this network?


Posted on October 14th, Playboy's most recent Centerfold post, disclosing their process of talking to creators live on Instagram prior to the launch of the platform.

Playboy is a brand with ties to models and various current and ex-workers in the adult entertainment industry. Playboy as a brand is also the gold standard for a lot of these entertainers, a piece of brand power that we owe much credit to the late Hugh Hefner. All in all, I think if you, me, and 10 other brands tried to fight for creators on their platform, Playboy would come out winning the majority of the fights.


Now that we understand the recurring revenue, high margin, scalable opportunity at hand, let's talk numbers.

Playboy's current market cap as of October 17th is currently $926MM USD with an EV of $831MM. This includes the $333MM Honey Birdette business, with double-digit revenue CAGRs and adjusted EBITDA margins (yes, I take adjusted with a heavy grain of salt), the Playboy brand (intangibles), 2 other lingerie businesses, the intangible assets that they are selling off for NFTs (I don't buy the NFT thing but hey I'll sell shovels to gold rushers, they sold this picture for $250K that cost them the payment to the model last century for a 100% FCF margin). The business has ~$280MM in 2021E pro forma revenue, was growing 40% YoY as of their most recent quarter, and has a hefty cash balance (they made a savvy equity raise when the stock popped during the NFT craze). So looking at that $930MM price tag, the current business doesn't look overwhelmingly priced, at all. Mind you, I'm not even considering Centerfold... yet.


Centerfold Valuation


I'll preface this with how interesting and challenging it is to model out a company that barely exists yet has declared its intent to compete. I've tried my best, but be warned, my models are more practical and straightforward than technical and full of buttons. I tried to sandbag Centerfold's performance, and be conservative as possible.


Assumptions:

  • 10% discount rate

  • 2% terminal value growth rate

  • Fans spending per year is an annualized rate of fans spending per month, remember, this is generally recurring revenue mixed with occasional in-platform purchases

  • No operating leverage

  • Lower gross revenue per fan

  • All numbers in thousands


Read: My models aren't pretty, but they *should* work

As you can see from the above valuation, a fairly mediocre execution of Centerfold (when compared to the fast and furious rise of OnlyFans) still results in a valuation that ranges from ~$840MM - $1.1Bn today. In other words, when you compare Centerfold's simple prospects at competing with PLBY's current market cap, you're essentially getting one of the two businesses (either Playboy as we know it or Centerfold) for absolutely free.


To make matters more interesting, let's not sandbag Centerfold's valuation. Let's now assume they execute with similar suave as their OnlyFans counterparts. Let's assume that by 2023, Centerfold has accomplished 50% of what OnlyFans did by 2021. This equals out to still being quite conservative as OnlyFans had an approximate ~2-year headstart when you consider when things really started to ramp up. So if you really want to think of blue skies numbers, take the following final answer and double it (so that CF has accomplished OF's 2021 by 2023, not 50% of it).

  • 50% of OnlyFans' 2021 revenue would be $600MM, at a 40% FCF margin that's $240MM in free cash flow.

  • Let's also value Centerfold at an extremely conservative 10x and 20x FCF or a 10% and 5% yield respectively on free cash flow, again, this is quite unprecedented for high-quality recurring revenue with massive TAMs, but let's assume a discount due to the nature of their industry

  • $240MM in FCF at a 10% FCF yield would result in a $2.4Bn company, and at a 5% yield or 20x FCF we're looking at a $4.8Bn company

  • Discount by a factor of FCF/(1+0.1)^2 (discounting at 10% for 2 years) we arrive at values of $1.9Bn and $3.9Bn respectively

To reiterate, the current market capitalization of the entire PLBY Group is currently ~$930MM. If you assume the current business is correctly valued, and Centerfold has not yet been priced in (logical seeing as it has not been reported in company filings, rather only on social media and the website with little to no press mention) then an accurate ballpark for an average Centerfold outcome for $PLBY would fall in a range of ~$2.8Bn - $4.8Bn. I'm aware the model isn't exactly Goldman material, and I'm aware there are ifs and buts around execution, but at the current valuation, my final conclusion for $PLBY is this:

  • At a $930MM valuation, Centerfold is clearly not being priced into the valuation

  • This valuation is already on the lower end if you consider the intangibles, DTC, and lingerie businesses

  • Centerfold's confirmation of competing in this large TAM, recurring revenue, high margin space is worth ~$1Bn on its very own, let alone that currently accounts for the entire company's valuation

  • In conclusion, I view $PLBY as one of the most asymmetric investments I'm aware of in the current market

  • You are essentially purchasing an average quality business at a relatively reasonable price, and you're getting equity in an OnlyFans competitor backed by one of the world's strongest brands in the adult entertainment niche, for absolutely free

  • Scenario 1: $PLBY Group and Ben Kohn absolutely botch the Centerfold execution, and you get ~80 cents on the dollar (assume some downside because hey, let's keep it conservative)

  • Scenario 2: $PLBY Group competes at albeit a much less impressive pace than OnlyFans and fails to gain the same traction, the business should be worth at least double and closer to triple of where it is today

  • Scenario 3: $PLBY Group successfully executes Centerfold at a similar pace and product-market fit as OnlyFans, and as per our blue skies projections, is valued anywhere from 4-8x the current valuation.

If you've read this far, I truly appreciate you. Please let me know what you think, share your own ideas on our forum, and feel free to use the contact page to reach out and ask any questions. Subscribe on our homepage to know when new ideas such as this come out!

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