$PLBY: Let's make a Play, Boy

The first thing we're going to look at is the price action over the last couple months. Just look at that 90 day chart and the absurd run up it's had since mid March. Looking at that, you would assume that whatever they are doing must absolutely print fucking money. They would have to to 6X the share price in a couple months right? Not really. A lot of the runup has been on the backs of NFT hype. I know, SPAC and NFT rolled into one, with the trends lately this thing should have fallen off a cliff by now. NFTs and SPACS may have absolutely fallen off a cliff as of late, but for some reason PLBY hasn't followed suit. To try to wrap our heads around the share price and figure out what the valuation should be, we're going to dig into their financials and balance sheet a bit.

Looking in to their earnings call in March we can see how they did in 2020 before the SPAC merger, including Q4. They had 147 million in revenue, or an EBIDTA of $28.3 million, coming from a variety of sources from sex toy sales, to digital media and subscriptions. After all costs were factored in they posted a loss of $5,271,000 for 2020. Revenue increased YoY by 89% as I imagine a lot of people spent a lot of time inside in 2020 using their toys and digital media. It should be noted that these numbers are unaudited from their time before being public. The Q4 numbers were 46 million in revenue, so a great quarter sales wise, with a net loss of about 500k. Earnings expectations for Q1 sit at an expected EPS of .03, and a revenue of $38.47MM. This would mean they need to make about 1 million in net profit, an increase of 1.5 million from last quarter, in a quarter where they likely saw a drop in demand with Covid on a downswing. After they released the earnings call, they had two seperate analysts give it price targets of $26 and $28, while they sat at around 20 for earings. They then went on an impressive run up to around $30 by early April.

Then in early April it was annouced that they would be partnering with Nifty to create a Playboy line of NFTs of artwork based on some of their original works. This is when things started to get out of control for them. Going on a series of rips and dips, it kept seeing higher highs and lower lows until hitting a peak of $63 a share a couple days ago. It went to the dip cycle next, dropping some yesterday and today, until recovering some to end around 48 per share. It's anyone's guess if this is the dip before a new rip, or the start of a larger correction. We came very close to breaking the cycle of higher lows however, and tomorrow will be big in my opinion. I'm getting ahead of myself however. Next I'll try to breakdown what's working for us, and against us.

First I would like to address the things working against us, as no bear case is complete without seeing the other side. NFTs, while many (including myself) see them as a fad, could be a source of very easy high margin revenue for a company with as much history to sell as Playboy. They recently aquired the lovers brand omni-channel retailer, and this could add to a suprise revenue beat. Also one must consider the Playboy name recognition. As we've seen lately, retail loves nothing more than propping up overvalued names based on them "liking the company". It has a high short interest around 20%, and the Playboy name, you never know when the dumb money will come running. They also have a decent balance sheet, with about 100 million positive cash flow, so they should be in no risk of running out of money soon.

Now let's get to the real meat, and why I think this stock needs a large haircut yet. This stock I think was hitting fair value when it was in the 30$ range, and when you consider the absurdly low float, and how hard it was dropping for a day or two after each pump, it paints a picture of somebody propping this up Hwang gang style.

Moving on to NFTs, I see these as a short term fad. How many people are really going to be willing to spend thousands of dollars for the "rights" to digital artwork that will end up on the internet anyway? They don't really even own the rights when they buy the NFT, PLBY still retains the ability to use it for their own purposes.

Some might have considered Lovers as a good acquisition, but not me. In our current landscape of retail stores dying, it's hard to imagine owning 41 retail sex shops can have great margins. I would have called it a win based on acquiring a platform for E-commerce, but PLBY already owned multiple platforms for selling their goods on, Lovers didn't bring anything to the table except 41 outdated storefronts.

When we dig into PLBY's prospectus, we see that they had an agreement on share lockup of about 20 million more shares on top of the 10 million currently in public float. It states in the prospectus that once they have a 30 day period where PLBY was above 14$ 20 of the days out of that month, that half of those shares were available to be sold. They just filed an amendment to the S1-A today that appears to announce that they are releasing those shares to be sold by the underwriters. Obviously the underwriters will likely be smart and not dump 10 million shares out of the gate, and not everyone will want to sell, but considering most of them have a basis of either $10, or in the case of some of the options, about $5, it seems to me that a lot of them will want to cash in their multi-baggers while it is still inflated from NFT hype. Again, my understanding of the filing could be incorrect, in which case, let me know.

This is a small thing, but we also see there were two insider sales filed in late April that were sold in March. It was a small amount relative to what they hold, but still felt worth noting.

I've also tried to consider possible difficulties they may face, and a lot of this is pulled from their IPO prospectus.

Competition: "sexual wellness" as they call themselves is a very flooded industry. Thave the playboy name on their side, but between local shops and dozens of online vendors there are plenty to do business with. Also the sale of their digital media has a hard time competing with the all the free sites with quality content that anyone can access. Playboy might have a special place in some of the older generations that grew up on Hugh Hefner's Playboy, but most of the newer consumers will lean on the newer free platforms for digital smut.

Inability to capture the lions share of the e-commerce market share: Any inability to identify, fund investment in and commercially exploit new technology could have a material adverse impact on our business, financial condition or results of operations. Straight from the prospectus, with a large portion of the sex toy market going to online retailers, if they aren't able to slice out a large chunk of that business, their growth will be heavily knee-capped.

Cancel Culture: I know this is a wildcard and a issue I don't want to bring up in a political light, but there's no denying that the world is looking at the adult entertainment industry in a different light lately, and that with Hugh Hefner's sordid history, the brand could take a hit at any moment.

If we are unable to advertise on certain platforms because of our brand or products, our business would be harmed. Again pulling from the prospectus, it brings up a good point about how difficult it can be for an adult entertainment business to advertise. One could argue that with the name recognition of Playboy that they don't need advertisement, but considering some of their platforms don't even carry the Playboy label, it isn't that easy, and could be another roadblock to growth.

Government regulations could adversely affect our business, financial condition or results of operations. Pretty clear here, between various places enacting sin taxes, and the possibility of sentiment changing towards adult entertainment in the U.S. and abroad, PLBY could face headwinds if regulation gets out of hand.

Catalysts: as many of you are likely familiar with, there's nothing worse than taking a short position or buying puts on a company that is clearly overvalued and watching it trade sideways or continue to go up due to nothing happening to pop the bubble. Even knowing that PLBY is a bubble, with nothing to pop said bubble, it could be a difficult play. Thankfully, we have a couple things working in our favor here. The most obvious short term catalyst is the release of 50 percent of the lockup shares. Most of the employees are going to want to take profit, including the underwriters who have likely been responsible for keeping the stock propped up as high as it has been. The second catalyst we have is earings on May 12th, or next Wednesday. I think they will have a hard time turning their first profit in a quarter that they likely faced decreased demand compared to 2020 Q4, and they may likely fall off a cliff if things look to be on a decline for their earnings.

My expectations: I think PLBY will show us a lot on Friday, and it will likely go one of two ways. It may spike up again like the last several times it bled out, presenting a great entry point to start taking a position. On the flip side, I think it likely that PLBY could continue it's slide, now that we have the added news of the non-dilutive offering announced, and if PLBY breaks below the lows of it's last time being in the dip cycle, it could start an all out rout until earnings. I started accumulating puts starting 4/27, and have added more in the days since. I went extremely conservative on the date, but not the strikes. All of my puts have been for October as I had fear of retail propping this up for months to come, but I have been buying to 20 and 30 strikes, as I think it's fair value lies somewhere in that range.

TL:DR - PLBY is overvalued as fuck from NFT hype, and with a bunch of shares being released to be sold by original investors that are sitting on 5-10 baggers, and a potential earnings miss, PLBY is fuk.