I’m in Las Vegas for the Money Show this week.
Las Vegas is a great barometer of the economy. I’ve been coming to this town since 1983, and every visit provides me with good information about the health of the consumer and the future direction of the market.
While the so-called "sin stocks" (gambling, liquor and adult entertainment) have suffered in this recession, due to tight budgets, limited travel and minimal excess cash flow for consumers, the city is showing signs of a full recovery now. The hotels are packed and cabbies are seeing signs of significant traffic improvement.
Unfortunately, the same is not true with adult entertainment company Playboy Enterprises, Inc. (PLA). This venerable name in publishing lost its luster long ago. And this recession is the last thing the company needed in hopes of recovering from a long slow decline in its business.
Today, Playboy announced a loss of 41 cents per share in the first quarter on weak revenues. The company had sales in the period of $61.6 million., well below the analyst expectation of $71.65 million. Though the whole entertainment magazine segment has been hurt, Playboy’s woes have been worse.
Will this famous magazine publisher recover? Not at this rate.
Here are 5 reasons to avoid Playboy stock…
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Reason #1 to Avoid PLA – Death of Publishing
Magazine revenues for Playboy were down 16% compared to last year’s first quarter, due to both softer circulation and advertising sales.
Clearly, it is not a good time to be a publisher. The industry is going through painful changes, due to increased competition from the Internet. The way we get information has changed. Newspapers are folding left and right.
Will Playboy magazine be next?
In general, I know that the number of magazines that I receive has declined significantly. Playboy must increase the number of dollars received from other sources in order to offset declines in advertising sales in its flagship product. But that doesn’t look likely in the foreseeable future.
NEXT: Playboy is still just a magazine.
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Reason #2 to Avoid PLA – Still Just a Magazine
Playboy will not survive unless it can find a new growth driver for its business. But efforts to diversity the Playboy empire have failed.
Attempts to go beyond print into TV, digital and retail efforts look good on paper, but so far have been lacking in execution. The online business is no replacement for what the magazine was in its heyday. Film and television efforts are way behind other adult purveyors.
And even the bunny isn’t bringing in the licensing revenue the company expected, down $1.1 million compared to the same quarter last year.
Reason #3 to Avoid PLA – Hefner Is Out of Date
Though long gone from running the business, Hefner is still the icon of Playboy. In the old days, that was a good thing. He used to be so cool. Now he is just a dirty old man. Watching the founder of Playboy Enterprises and his girlfriends on the E Network just isn’t doing much for the business in the 21st century.
The problem with one-founder businesses is that they rely on that founder for innovation and success. Hefner hasn’t provided that directly in the management of the company in years. But sadly, he hasn’t done anything innovative as a figurehead recently either.
Give him credit for breaking social mores, but he deserves a big fat F for letting Playboy wither on the vine.
NEXT: Playboy’s retail strategy will fail.
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Reason #4 to Avoid PLA – Retail Strategy Will Fail
My wife said it best when we happened upon a Playboy store while shopping here in Las Vegas, "This stuff looks way to sleazy."
A good retail strategy relies on catching a fad or filling a niche. The Playboy approach is to sell a bunch of shorts and t-shirts that have been previously adorned by the Girls Next Door.
The venerable bunny may be cute and all, but the product in the store I saw was poor at best. I don’t get the sense that men will be out rushing to buy gifts from a Playboy store, and I am most certain that women will not shop there if good taste has any meaning. If you want trash, you go to Fredericks of Hollywood. If you want class, you go to Victoria Secret.
Don’t buy the stock if you are betting on retail being the Holy Grail.
NEXT: Poor positioning in the marketplace.
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Reason #5 to Avoid PLA – Poor Positioning in the Marketplace
The unwillingness of Playboy to change has backed the company into a corner. Its products are too wholesome for those looking for more adventurous forms of adult entertainment and too aggressive to compete against mainstream publications.
Jimmy Jellinek, the new Playboy editorial director, claims he wants to return the magazine to its golden age, and he sees his biggest competitors as The New Yorker and Vanity Fair. Too bad Playboy’s audience sees Maxim as a better example — and one that does a better job, too. Ironically, Jellinek left Maxim to head Playboy.
So far, he isn’t giving me any reason to recommend the stock.
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