{"id":36311,"date":"2013-02-20T17:54:21","date_gmt":"2013-02-20T22:54:21","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36311"},"modified":"2013-03-10T21:49:01","modified_gmt":"2013-03-11T01:49:01","slug":"the-playboy-leveraged-buyout-two-years-later","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/20\/the-playboy-leveraged-buyout-two-years-later\/","title":{"rendered":"The Playboy Leveraged Buyout, Two Years Later"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Almost exactly two years ago, I wrote a short piece<\/a> on Hugh Hefner\u2019s leveraged buyout of Playboy Enterprises and commented that the company was transitioning away from its\u00a0adult media businesses and into licensing and brand management.\u00a0 Essentially, founder Hugh Hefner wanted to turn his company into something like a Dolce and Gabbana, but with an edgier reputation.<\/p>\n

It\u2019s easy to understand Hefner\u2019s motivation.\u00a0 The internet had taken a wrecking ball to his business model.\u00a0 Magazine and newspaper sales are in terminal decline. (Remember, men buy Playbo<\/i>y Magazine<\/em>\u00a0for the articles. Really.)\u00a0\u00a0 And it\u2019s difficult to turn a profit in adult media given that you\u2019re effectively competing with free.<\/p>\n

\"hef\"<\/a>Playboy Enterprises definitely had the pieces in place.\u00a0 The Playboy bunny is one of the most recognizable brand logos in the world, and the robe-wearing, pipe-smoking Hefner is a brand in of himself.\u00a0 Long after the 86-year-old Hefner passes, his image will have marketability.\u00a0 It’s crass, but it sells.<\/p>\n

Incidentally, Hefner is grooming his 21-year-old son Cooper<\/a> to wear the robe and carry the pipe after he is gone, becoming the public face of Playboy.\u00a0 Given that the company already has professional management currently led by CEO Scott Flanders, it\u2019s not entirely clear what the young Mr. Hefner\u2019s role will be other than attending extravagant parties with beautiful young women on each arm.\u00a0 I suppose it\u2019s a hard job for a young, red-blooded American male, but someone has to do it.<\/p>\n

All joking aside, the young Hefner\u2019s role will be extraordinarily important if Playboy Enterprises is to have a future.\u00a0 Because now more than ever, the company is selling a feeling rather than a product: the aspirational image of the modern bon vivant. Think about the \u201cmost interesting man in the world\u201d commercials for Dos Equis beer.<\/strong>\u00a0 This is the image they are going for.\u00a0 If Cooper Hefner is to sell the lifestyle as effectively as his dad, he has a large robe to fill.<\/p>\n

So, how is the company\u2019s transformation going?<\/p>\n

Actually, not that bad.\u00a0 Since taking control of the company in 2009, Flanders has cut the payroll by 75% and sold off some its older media businesses.\u00a0 Revenues are down from $240 million in 2009 to just $135 million in 2012.\u00a0 But profits have nearly doubled, from $19.3 million to $38.9 million (measured as adjusted EBITDA).<\/p>\n

Playboy is distancing itself from what most people would consider pornography, ditching its video business and offering media without nudity.\u00a0 The Wall Street Journal<\/i> calls it Less Smut, More Money<\/a>. The company even has an iPhone app and a SiriusXM radio station<\/a>.\u00a0 And of course, there was the popular E! series The Girls Next Door<\/i>.<\/p>\n

The company is hoping to go public again in 2014, but it\u2019s going to have a hard time getting there.\u00a0 Licensing only accounted for $62 million of its $135 million in revenues last year, and the magazine continues to lose money.\u00a0 The company is in violation of its loan covenants and may get downgraded by Standard & Poor\u2019s.\u00a0 And Playboy Enterprises\u2019 ability to grow and go further mainstream will be limited by its toxic association with pornography and by the general cloud of sleaze surrounding its image.<\/p>\n

And if\u00a0the company\u00a0does go public again, institutional investors will not exactly be lining up to buy shares.\u00a0 If tobacco, alcohol and gaming stocks are difficult to own in the age of political correctness, then imagine having to justify a social pariah like Playboy to the trustees of a pension plan, foundation, or university endowment.<\/p>\n

I wrote last year that Not All Sin Stocks are Created Equal<\/a>, and Playboy Enterprises is a perfect case in point. \u00a0Its brands have value, but its core businesses have no moats.\u00a0 If the company is successful in cleaning up its sleazy image and builds its licensing revenue streams high enough to compensate for a failing print media business, then the company might have a future.\u00a0 Whether that future is enough to sustain the lifestyle created by Mr. Hefner is another story.<\/p>\n

SUBSCRIBE <\/a><\/strong>to Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post The Playboy Leveraged Buyout, Two Years Later<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

\n

Related posts:<\/p>\n