Is Playboy Group Riding the NFT Craze Roller Coaster Up or Down?
Years after it last published a physical magazine, Playboy Group Inc. (Nasdaq: PLBY) is back in the news. Its stock market value soared 51.6% during three days of trading before and after Easter weekend. The explosive gains stacked up as investors responded to an announcement that Playboy is partnering to launch a series of non-fungible tokens (NFTs).
Does this signal a fresh opportunity for ongoing gains into the future, or is it just a brief, irrational surge over a fad likely to end in the near future? Let’s take a look.
Playboy Group’s Return to the Public Markets
Exactly ten years ago, Playboy dropped out of the stock market following four decades as a publicly traded enterprise, as Hugh Hefner sealed a deal with Rizvi Traverse to turn his company private.
A SPAC merger with blank-check company Mountain Crest Acquisition Corp. on February 11, 2021 served as Playboy Group’s second IPO, bringing it back into the stock market arena as part of this year’s “special purpose acquisition company” craze.
After a lukewarm reception, Playboy stirred up some bullish interest with its fourth quarter (Q4) 2020 earnings report on March 24. Highlights from the report included:
|Metric||Reported Figure||Year-Over-Year Gain (Loss)|
|Q4 Revenue||$46 million||+118%|
|Q4 Net Loss||($0.5 million)||+$5.5 million|
|Fiscal 2020 Revenue||$148 million||+89%|
|Fiscal 2020 Net Loss||($5.3 million)||+$18.3 million|
|Q4 Operating Income||$4.9 million||+$8.7 million|
|Fiscal 2020 Operating Income||$13.6 million||+$19.6 million|
Though still generating net losses for both the quarter and the fiscal year, the company appears to be firing on all cylinders when it comes to a successful rebound from its 2019 performance. Notably, the jump in revenue and operating income, and the sharp narrowing in bottom line losses, are heavily weighted toward the final quarter of the year, indicating Playboy’s growth is probably still gathering momentum.
CEO Ben Kohn noted the company is “in a strong position to aggressively expand in our four key categories of focus—sexual wellness, style and apparel, gaming and lifestyle, and beauty and grooming.”
He pointed out digital direct-to-consumer sales are booming, reaching $1 billion in merchandise sales in China alone for 2020, and noted the company’s licensing business is growing at a yearly rate of 20%. The stock market rewarded the notorious lifestyle company with a more than 20% share value boost in pre-market trading.
Playboy Group Taps Into the NFT Trend
Playboy Group’s second upward surge on the stock market started just a few days later, when investors were electrified by news about the company’s NFT plans. Nifty Gateway and Playboy shook hands on a partnership to turn “The Rabbit’s” decades-worth of photographs, art, and other material into “non-fungible tokens,” or NFTs.
An NFT is basically a “uniquely autographed” image, video, or sound file which is individually “signed” and identifiable by registration as part of a blockchain. The artwork, photograph, video, music, or sound file isn’t unique in itself, and can be copied and used elsewhere as infinitely as any other file.
The NFT simply assigns an exclusive digital signature to one specific instance of the file, similar to an autographed copy of a book or other mass-produced item. Its monetary value comes from the unique blockchain identifier attached to it, not the singularity of the photo, video, or sound file itself.
NFTs are the latest fad: the “collectible” files are now described as “assets,” with one single high-profile image file recently selling for $69 million to an investor, and a short video clip of LeBron James dunking a basketball selling for $208,000.
The trend is said to be a boon for artists, while some of its beneficiaries are more cynical about it, with one, a Canadian electronic musician known as either Deadmau5 or Joel Zimmerman, remarking “artists are happy to have finally found a way to fuck people over harder than any major label ever could,” according to The Atlantic. Assuming NFTs continue to sell for staggering sums into the future, Playboy Group is certainly well-positioned to benefit from the fad.
According to the press release detailing the partnership with NFT platform Nifty Gateway, Playboy’s archives “contain an immense wealth of original artwork, photography, cartoons, interviews, and multimedia ripe for exploration by digital audiences, art lovers and collectors.”
Following the announcement, Playboy Group’s shares rose a total of 51.6% during three trading sessions, on April 1, 5, and 6. On April 7, however, the company’s shares dropped between 10% and 17% at various times during the day.
Is Playboy Group Stock Worth Buying?
Looking at its recent history, Playboy Group’s gains in late April have a solid underpinning of actual business activity to support them, with apparel sales being one of the revenue leaders in Q4 2020 and over the whole year. This week’s gains, however, are related almost wholly to the potential for selling its extensive collection of photos and videos as NFTs for astronomical prices.
While NFTs can return massive profits from trivial production expenses, the question remains of whether they will remain a solid asset going forward or are just a speculative bubble. According to Bloomberg, current NFT prices have plunged 70% on average compared to the same token’s value in February, using information collated by Nonfungible.com.
The cryptocurrency trader Vignesh Sundaresan, who purchased the $69 million image file, predicts the market will settle out around a “very few high-value items and an infinite number of very low-valued items,” and says NFTs should be viewed as a way to support artists, not as an investment.
From an investing standpoint, Playboy Group’s prospects look bullish, but its value is currently distorted by Wall Street’s possibly ill-informed enthusiasm about NFTs. You may want to wait to “buy the dip” when the stock falls closer to its pre-NFT level, which is based more on its actual rising sales as an apparel and lifestyle brand, and not on the dubious potential value of extremely volatile autographed image files.
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