Playboyyyyyy, whatcha gona do?

Has anyone looked at Playboy recently? Seems like this company has the potential to go down, down and out. 

Acquisitions:

No “organic” growth strategy here to date, growing via acquisitions doesn’t count as “organic” growth. Despite some of management team going to business school, they are not knowledgeable about this concept. Can’t talk about each of their acquisitions, but their acquisition of Honey Bird was a colossal waste of resources. They paid ~$230 million in CASH for a business that is barely EBITDA profitable and not making more than US$10 million dollars on an annualized basis (what an outstandingly obnoxious multiple to pay) Financials may be off by 5/10%, but the broader gist here is that their capital allocation policies are out of “WACC”. Their “Summary Financial Overview” page on their Nov 2020 Investor Deck includes acquisitions, but if I was to strip out the results of TLA and Honey Bird, these folks would be off the mark by quite a bit.  

Cash Flows:

They have ~US$67M in cash on their balance sheet, maybe their bank allows them to draw more under existing credit facility agreements, but the key point here is that for the 9M 2021 ended, their operating cash flow was a burn of $41 million, and if the growth strategy is to grow via acquisitions (which seems likely given historical patterns), they will be out of cash by next year. Debt levels to cash flows are already unsustainable, and while they don’t have any “significant” upcoming maturity post 2025, I also don’t see any valuable assets that they can pledge to get more financing in the debt markets. By the way, what do they need an Aircraft for? Is it to fly these “models” or for some other “genuine” purposes? They don’t have any scale or profitability to be indulging in this kind of resource-squandering. I have no idea how they are valuing these intangibles, but seems too good to be believable. I do wonder though why did they not go with one of the Big 4s when it came to this exercise…But anyways, I will get into the factors later, which will and should impact the value of their intangibles (see Liabilities section). Their only bet would be equity capital, but that will come at a high price assuming they are successful in the first place, as their current liquidation value suggests that there wouldn’t be any leftovers for the equity folks…

Accounting:

This relates to their auditor primarily, but I am very skeptical of their EBITDA adjustments. They are adding back acquisition costs when they have a track record of growing via acquisitions, these seem to be very recurring in nature, same goes for their stock-based compensation. Yes it is non-cash in nature, but they are taking away equity from folks in the cap structure, and this should not be added back here. I am also doubtful about this related party transaction, where they are paying some management consulting firm $250K, it might be a small amount, but to me, this points to some conflict of interest. Why is this consulting necessary, and what is the value-add that this service renders to other stockholders? All of this sounds extremely shady. 

Business Operations:

Management talks about building a platform to get influencers and content creators, but network effects and reputation matters, and given their existing scale as well as lack of liquidity, prudent capital management, they don’t have what it takes to compete with the likes of Instagram / Snapchat / TikTok. To add further, these companies don’t really have the sort of legacy issues that Playboy is dealing with here, which I am going to expand on now. All the segments that they aspire to enter (“Grooming and Beauty”, “Gaming and Lifestyle”, “Style and Apparel”) have companies with established moats and very limited-to-none legacy issues that I don’t see them gaining any market share here. Please note that I have left “Sexual Wellness” out here, not because I think they have an advantage there, but because if you’re not doing well in three segments, there will be no cross-pollination, and the Sexual Wellness will be more akin to an orphan / widow, whatever one desires to call it.

Liabilities:

Now dead founder, Hugh Hefner, has a tarnished legacy, and in today’s world, no “corporate-responsibility” conscious customer would want to stock their products. I understand they have things at Walmart and CVS, but I am willing to wager that they are paying high shelf costs for this relative to their other customers. Similarly, their law suit with a Thai company that was announced end of last year will open them up to other potential law suits. The models / “content creators” that they have on their platform are immature and/or porn stars, and / or have had their fair share of significant legal troubles. This is such a huge liability risk they are carrying that any sophisticated investor would want to stay away from their company. The only potential customers I see for them are the likes of Jeffrey Epstein and his gang members. Maybe when Epstein 2.0 comes along, this company gets rekindled. It only takes a minute or two to dig up dirt on almost each of these content creators…Also, the acquisitions that they completed for stock will also come after them as the share price (on which the transaction was consummated) dwindles, so that’s that, but they don’t have a cash war chest to pay for acquisitions, and neither would it be a sensible move, so either way, Playboy loses here.

PS: I have no position in the company, and neither have I ever had any. This is more of a discussion topic, and this is my own proprietary idea that I haven't executed on. Welcome any conflicting views, but interested in hearing if folks here disagree or agree. Some harsh and strong words here, but important to look at the broader gist