Plby Group Inc

NASDAQ:PLBY

Earnings Call Analysis

Playboy Realigns Strategy Amidst Growth

Continuing the positive trend from the previous quarter, Honey Birdette's performance remains strong. However, the company decided to close a few underperforming Australian stores due to end-of-life leases and unprofitability. As for digital strategy, Playboy is pivoting towards a creator-centric model with the rebranded Playboy Club platform, capitalizing on their 70-year archive for better SEO and organic traffic. Content creation alongside creators for third-party platforms aims to drive subscribers back and earn shared ad revenue. Membership launches are proving strategic, with nearly 40% conversion from Playboy Plus, and future plans include expanding tiers and leveraging 'Bunny Money' for transactions.

Investment in Creators and Membership Growth

Playboy has identified that creators often seek to maximize their earnings, cultivate their brand and audience, and maintain a solid reputation. Playboy's strategy aligns with these desires by offering a comprehensive approach to support creators in achieving these goals. A significant move has been the introduction of a membership structure, priced at $99, which is not just a source of revenue but also a marketing tool, offering $25 worth of Bunny Money to be used on the platform, encouraging creator and user engagement.

Store Closures and Capital Efficiency

Amid overall brand strength, there has been a strategic decision to close down select retail locations. These closures are primarily targeted at Australian stores nearing the end of their leases, requiring substantial capital expenditure for refurbishments, and operating at a loss. This move is indicative of a focus on capital efficiency and profitability, suggesting a more disciplined approach to physical retail presence.

Digital Transformation and Platform Evolution

The company has taken a clear turn towards digital, rebranding its platform as Playboy Club to emphasize interaction with creators. Efforts include leveraging 70 years of archived content for search engine optimization to drive organic traffic, producing content with creators for third-party platforms to draw users back, and contemplating long-term plans to unite Playboy Plus and playboy.tv under a single user flow. This demonstrates Playboy's prowess in evolving its digital strategy to keep up with changing media consumption trends.

Future Vision for Membership and Bunny Money

Playboy foresees an evolution of its membership offerings, with plans to introduce various tiers at higher price points for different levels of access to the Playboy lifestyle. Bunny Money, the platform's virtual currency, is positioned as a strategic tool not only to encourage spending on creators but also to consolidate numerous small transactions into fewer credit card charges, thus reducing transaction fees on the company's end and improving the user experience. Long term, Bunny Money may be used similarly to loyalty points or incentives used by gaming companies, offering a glimpse into Playboy's roadmap for enhancing user retention and monetization.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, everyone, and welcome to PLBY Group's Full Year and Fourth Quarter 2023 Earnings Conference Call. Hosting today's call are Ben Kohn, Chief Executive Officer; and Marc Crossman, Chief Financial Officer and Chief Operating Officer. The company will be hosting a question-and-answer session today. [Operator Instructions]. While we wait for the queue to fill, I'd like to hand the call over to Ashley DeSimone of ICR.

[Ashley DeSimone]

Thank you, operator. Good afternoon, everyone. I'd like to remind everyone that the information discussed today is qualified in its entirety by the Form 8-K filed today by PLBY group, which may be accessed on the SEC's website and PLBY Group's website. Today's call is also being webcast, and a replay will be posted to the company's Investor Relations website.

Please note that statements made during this call, including financial projections or other statements that are not historical in nature may constitute forward-looking statements. Such statements are made on the basis of PLBY Group's views and assumptions regarding future events and business performance at the time they are made, and we do not undertake any obligation to update these statements.

Forward-looking statements are subject to risks, which could cause the company's actual results to differ from its historical results and forecasts, including those risks set forth in the company's filings with the SEC and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements.

During this call, the company may refer to non-GAAP financial measures. Such non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release, PLBY Group filed with its Form 8-K today.

With that, I will hand the call back over to the operator to begin the Q&A session. Operator?

[Operator]

[Operator Instructions]. Our first question comes from the line of Jason Tilchen with Canaccord Genuity.

[Jason Tilchen, analyst]

Thanks for all the helpful color in the press release. A few questions, maybe one to start off. Licensing revenue came in pretty well ahead of our expectations. I'm just curious how much of this was driven by sort of recurring -- recovering more of the minimum guarantees that you have in place already versus contributions from some of the newer partners that you've been adding over recent months?

[Ben Kohn, executive]

Thanks, Jason. It's Ben. We're happy with where we are on the licensing business and the strategic changes we've made to especially rebuild our China business. We are in active negotiations to replace the terminated licensees as well as going after one of our former licensees on a legal basis over there. So we're starting to see traction, and we're starting to see what I would say, is stability, especially from a macro perspective in that business.

[Jason Tilchen, analyst]

Great. That's helpful. And then one I have on Honey Birdette. Last quarter, you talked about how, right now, maybe the market backdrop, it wasn't the right time to sort of look to that [ in a set ] but longer term, you didn't see it as part of your core strategy. I'm wondering, given the momentum that business had in Q4, some of the things you laid out in terms of your goals for this year, if that view has changed at all? And sort of a follow-up to that would be, do you see an opportunity to leverage Playboy Club creators to drive some of the organic advertising and marketing that you talk about within your goals for that business there?

[Ben Kohn, executive]

Sure. So I'll reiterate what I've said historically is our goal is to move to an asset-light model. But we believe Honey Birdette is a very valuable brand and we were to make the operational changes in the interim, and we've made those, and we're starting to see the performance through that both on the top line and the bottom line. We are in the process of [ making ] a 10% price increase this year to the products. We had not really done that given the mass inflation we've all seen as consumers over the past few years. And we haven't seen any resistance to that from the consumer so far. And so our goal long term is still to find the right owner for that.

But in the interim, we are not going to just give away that asset at the wrong valuation for our shareholders as a fiduciary. And so as market conditions improve and the business continues to improve, we're always hoping to be an opportunistic, especially given our debt, our goal is to delever the company.

As far as integration, yes, I can tell you we have creators that come into the office every day wanting Honey Birdette. And I think there are a lot of things that we can do, moving forward, to better integrate our creators into working with and promoting Honey Birdette. We're working on something right now for Formula 1 event we'll be having in Miami with that. Making no promises, but I think there's other rewards now that we've introduced our tier and point system within the Playboy Club app to reward creators down the road with merchandise as well.

[Jason Tilchen, analyst]

Okay. Great. That's really helpful. And just at a higher level, following up on that. In terms of -- you talked about how -- because of the licensing challenges and headwinds last year, you didn't really invest as much into promoting and marketing the creator platform. Curious if you can maybe dive into some of the strategies you plan to deploy this year. You talked a little bit at the end of the press release about how you're going to focus on growing and marketing that digital business. I'm wondering if there's anything else you can share on that plan.

[Ben Kohn, executive]

Sure. And I think last year, we spent basically nothing on marketing or promoting that, and we still saw a phenomenal top line growth in that business last year. But I think we have to return the company to what its roots were. And I think we talked about that in the earnings release, I think, the expression and a lot of people hear these days are sort of go woke and go broke. I think this is a business that has always been about working with beautiful women. And a lot of the way we expressed that historically was through content, and we plan on getting back into the content game this year.

And so that content will come to life in many forms, including the return of the Playmate. Hopefully bringing back the magazine, but then also producing content that lives on other platforms with the goal of acquiring audience and acquiring creators. And so we think creators want 3 things, in our mind, they want to make money, make as much money as they possibly can. They want to build their brand and their audience and they care about the reputation.

And we think at Playboy, we can fill all 3. I think we also launched membership, and membership is very strategic for us, not only does it increase our revenue, but it gives us a product that we can actually spend money against marketing. We have not done that today. Very happy with sort of the organic revenue that we are generating off of membership. But now with the $100 price point, we have money to actually go spend to generate new users and creators to the platform through performance marketing. But the majority of our spend will all be through content. We think that's the most effective way to market the platform, that content featuring our creators. And it also helps us from a brand perspective on the licensing side.

[Operator]

Our next question comes from the line of Greg Pendy with Chardan.

[Gregory Pendy, analyst]

Congrats on the strength in Honey Birdette carrying from 3Q into 4Q, but I just wanted to pick at that a little bit. I was wondering if you could provide any color on the decision to close those stores. Were they in unattractive lease locations because I know they're typically in very high-end locations? Or any color on what made those 3 stores kind of standout versus an overall strength in the brand?

[Marc Crossman, executive]

Greg, I'll take that. It was -- they're primarily stores in Australia and a lot of the stores in Australia have been around for quite some time. And so we're looking at end of life for these leases versus the amount of CapEx we'd have to put in to refurbish them and also whether or not they're running at a 4-wall loss or profitability. And so if we have a lease that has come to life, we would still have to put new CapEx dollars in to refresh it, and it's losing money. That's a story that we earmarked to close. And as we had said in the release, there are probably about 4 of them that you'll see us close over the course of the year.

[Gregory Pendy, analyst]

Okay. That's helpful. So there's going to be a limited termination fee probably on the lease because they're near end of life.

[Marc Crossman, executive]

The ones that are near end of life, yes, there won't be one, but the ones -- there's one that we're looking at, which there would be a small termination fee.

[Gregory Pendy, analyst]

Okay. That's helpful. And then just shifting gears, just one on the digital strategy. It just looks like -- I want to make sure I understand how you guys are thinking about it in 2024. I know you've made a lot of changes and improvements to the platform, but it seems like the strategy maybe versus your competitors is to really support the creators and hope that it's the creators that will then drive the subscribers. Is that fair to say?

[Ben Kohn, executive]

Thanks, Greg. I'll take that. So a couple of things. Obviously, we branded the platform, the Playboy Club. And I think in doing some research with consumers, what we found was the historical means we used for it didn't really support what the main purpose or the main action people are doing, which was interacting with creators. And so the Playboy Club now from what we're seeing and from what we're hearing from users, clearly supports the place to come interact with our creators.

From a user funnel perspective, there's a number of things that we're doing. So first, creators bringing their own users to the platform, and that's mostly done through their social media platforms, whether that be TikTok or Instagram, where they're putting a link in their buyout to their Playboy page. We also have users that just come to Playboy because of the strength of the brand. And actually, we recently replatformed our 70 years of archive, which was a stand-alone product that historically have been licensed, called iPlayboy, but it was one at a third-party site. And we actually replatformed that into our current code. It sits as part of membership now.

But more importantly, what it does is it allows us to SEO 70 years of archives. And so we're seeing things like that start to drive more organic traffic. And then the third strategy moving forward is, obviously, to start to produce content alongside our creators.

With the goal of that content sitting on third-party platforms, whether that's a podcast on Spotify, video content on YouTube, really highlighting our creators to what we think are historical franchises like 20 questions, like the Playmate, et cetera with the goal of driving people back to our platform. The other thing is we think we can put advertising revenue -- programmatic advertising revenue against that content, and we'll share in that advertising revenue with our creator as well.

[Gregory Pendy, analyst]

Great. Well, that's very helpful. Congratulations on the quarter and good luck in 2024.

[Ben Kohn, executive]

Greg, the only other thing I'll mention is the launch of membership is very strategic in the ability to acquire users moving forward as well. And so what's actually interesting is we're testing our funnels as we've seen almost 40% of our members to date come off our Playboy Plus platform. Playboy Plus is a platform that we've actually never bought traffic for. It's just an affiliate deal. And so we think there's another opportunity over there to actually start to expand our traffic acquisition strategy there.

It's a separate subscription product, but then we're seeing that conversion of people that are signing up for Playboy Plus, also signing up for the Playboy Club membership. And so things like Bunny Money enable us to make that transition and that user flow more seamless. Long term, as we said in the press release, that we will look to replatform both those products, Playboy Plus and playboy.tv and so that we can have a single sign on user flow.

[Gregory Pendy, analyst]

Okay. That's helpful. And then just so that I understand, the membership right now, it's $100. And is there -- is it $25 in the Bunny Money right now to help incentivize and move the membership?

[Ben Kohn, executive]

So the membership is $99 right now, you get $25 of Bunny Money as part of that to spend on your favorite creators. We think there's use cases to continue to expand Bunny Money to 10 Playboy events. Playboy golf tournaments, poker tournaments et cetera. Right now, it's -- the primary use is to spend on the creators and then long term, we see multiple different tiers of membership. Each one being more limited in nature at a higher price point, but unlocking more of the Playboy lifestyle.

[Gregory Pendy, analyst]

Okay. And then one final one on the Bunny Money. I know it's bundling the transaction. Does that only lower the fee on your end? Or does the user kind of also see the benefit of using Bunny Money?

[Ben Kohn, executive]

Well, there's multiple different [indiscernible]. So we've just started with Bunny Money. But yes, from our perspective, the way our credit card fees work is we pay a per transaction fee as well as a percentage of that transaction. And so if someone is tipping $1, you're paying a per transaction fee every single time someone tips a $1. And so by bundling transactions and saying that any transaction under $10 has to be used by Bunny Money, it's a onetime charge on the credit card.

The other thing we heard from users actually was there's too many transactions showing up on people's credit cards and was there a way to aggregate all those transactions, Bunny Money allows us to do that. Long term, we can use Bunny Money very much like DraftKings and other gaming companies do to incentivize first time spenders, to incentivize people to come back to the platform that might have churn. And so I think we will continue to let the data speak for itself, but continue to expand the use of Bunny Money long term on the platform. It's just the economics make sense for us. The economics don't change for the consumer or for the creator, and so it makes sense overall.

[Operator]

Thank you. And we have reached the end of the question-and-answer session. I'll now turn the call back over to the CEO, Ben Kohn for closing remarks.

[Ben Kohn, executive]

I appreciate everyone dialing for our Q4 and full year '23 results, and we look forward to talking to you in a few months on our Q1 results. I appreciate it, everyone.

[Operator]

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.