Good morning! Today’s word count is 1,871 words, or an 8-minute read. Let’s get to it:
Market Summary (10:30am ET): U.S. stocks opened higher as appetite for riskier assets continues to be supported by stimulus from central banks and the government, but are giving up some gains in the morning as jobless claims remain elevated and household incomes decline.
- S&P 500: $3,369.67 (+0.20%)
- Nasdaq: $11,244.10 (+0.69%)
- Bitcoin: $10,878.16 (+5.16%)
- U.S. 10-Year: 0.692%
Justin Oh’s Quick Read
Read story No. 1 for the full analysis of Playboy stock, which is currently $MCAC but will be $PLBY after the deal closes. As far as valuation goes, Playboy is pretty reasonably priced at $10.25 at the time of writing. Buying in at that price would imply a 10.5x forward EBITDA, which is around where the biggest fashion apparel brands are trading. Playboy definitely doesn’t have the scale or profitability advantages that its biggest publicly traded “peers” do, but it has massive expected growth off of a smaller base. This definitely isn’t a stock that should be a significant position or a long-term hold. Still, if we’re ok with the stock’s morality and unpredictability, it actually looks like a small, potentially high upside speculative bet. Gut feeling says that they are setting themselves up to smash their projections, given how fast brands can get popular with the right media and celebrity partnerships.
Playboy to Go Public Again in Deal With Blank-Check Firm
Playboy is merging with Mountain Crest Acquisition Corp. in a SPAC deal, valuing the brand at $415 million, WSJ reports.
Wasn’t Playboy public already? Yes. But in 2011, founder Hugh Hefner and private-equity firm Rizvi Traverse took it private. Roughly a year after Hefner passed away in 2017, his family sold its 35 percent stake to Rizvi Traverse for $35 million.
Playboy has changed quite a bit since Hefner founded the magazine in 1953. After nearly 70 years on newsstands, Playboy stopped publishing its iconic adult magazine that “chronicled the sexual revolution” earlier this year. It also bought online adult apparel and accessory business Yandy.com.
SPACs deals continue to dominate public offerings in 2020. This year has seen 120 SPAC IPOs, grossing almost $46 billion, according to SPACInsider.com. Notable companies to go public this way include DraftKings, Virgin Galatic Holdings and Nikola Motors.
- While quicker and less complicated, SPAC deals have drawn questions from the SEC on the little information investors have “to go on.”
What’s next? If the deal is approved by the SEC, Playboy will hit the market as $PLBY in 60 to 90 days. According to CEO Ben Kohn, the agreement puts Playboy “on track to increase revenue by 68 percent in 2020.”
The current, seemingly very competent management team took over after Hugh Hefner died in 2017, and it looks like it’s been somewhat of a turnaround story since then. Playboy’s biggest strengths are in its brand recognition globally and its massive social media reach. They mostly license and sell Sexual Wellness and Style & Apparel products, and a little Gaming & Lifestyle and Beauty & Grooming products as well. They’re shooting for revenues of $296 million and EBITDA of $104 million by 2025, which seems pretty reasonable given their momentum. In fact, they might have a shot at overshooting that goal by a lot. A bet on Playboy would require them to gain traction in pop culture, which is impossible to predict. But given their brand assets and recognition, we imagine it would be pretty easy to gain traction by getting some very famous people (like Cardi B) to integrate the brand into their content. We also think that branding Sexual Wellness products with Playboy branding is pretty easy pickings. This is not our brand of long-term or dominant business, and there’s obviously the issue of investor morality in owning such a promiscuous company. But if you believe in a newly focused Playboy brand, it seems like a pretty hot trend to hop on if you’re willing.
Google Pledges $1 Billion in Licensing Payments to News Publishers
Google is launching a news aggregation and curation product called Google News Showcase and has already signed deals with 200 publications to provide content for the new offering, WSJ reports. The program will launch in Germany and Brazil, and Google is in talks with publishers in other countries, including the U.S.
Since earlier this year, Google has been negotiating possible licensing arrangements. It’s a growing trend across Big Tech.
- Last March, Apple launched Apple News+, which rounds up stories from several news outlets.
- Facebook also started paying news publishers last year after it launched a new feature to include story briefs on its news tab.
Traditionally, Google has been part of the problem plaguing the news industry. Publishers have criticized the tech giant for sucking the money out of online advertising. Outlets like WSJ have also taken issue with Google using its news content without paying royalties.
- Google’s online ad dominance is one piece of an impending antitrust suit from the Justice Department.
How will it work? Well…
- Google News Showcase will integrate into the Google News app and search.
- It will tease images and summaries, linking back to stories. Video and audio content will come later.
- Publishers will be paid partly on “the number of stories they curate and summarize for Google News.” Readership won’t affect how much publishers get.
- Google hasn’t said how much publishers will get each but has committed $1 billion to licensing fees over the next three years.
This is really interesting because they are trying to become the news summarizer and aggregator to rule them all, and they have a good shot at pulling it off. Google takes the lion share of advertising dollars because they are and control the “homepage of the internet.” It’s been rough on publishers because they make internet content and rely on Google’s search traffic, but don’t share meaningfully with Google’s advertising revenues. In some ways, this looks similar to the massively successful YouTube playbook, where content creators get paid for providing Google’s platform with content, which maintains dominance, content relevancy, and mindshare for Google, but also keeps content creators happy. As $GOOG shareholders, we hope this initiative will do the same between Google (News) and Big Media.
Number Crunch: U.S. Consumer Spending Rose in August, but Incomes Pose Challenge for Economic Recovery
“U.S. consumer spending rose 1.0 percent in August while incomes fell, presenting a new hurdle for the economic recovery,” WSJ writes.
- Personal income dropped 2.7 percent in August compared to July, partly because of a decrease in government support for jobless workers.
- U.S. gross domestic product grew at a yearly clip of 30 percent or more from July through September, propelled by strong Q3 consumer spending.
- If the rate holds, it would restore a significant portion of output lost from the Covid-19 shutdown. Output dropped at a 31 percent pace in Q2 after falling 5 percent in the first. It was the sharpest quarterly contraction since World War II.
- “Few economists expect the third quarter’s robust growth to persist, in large part because Americans’ ability and willingness to spend may not hold up.” According to IHS Markit, growth in U.S. output could slow to a 2.5 percent yearly rate in the fourth quarter.
- Other economic metrics are expected to remain high. WSJ projects the September jobs report to show “show a gain of 800,000 jobs and an 8.2 percent unemployment rate, down slightly from 8.4 percent in the prior month.” Employers have replaced roughly half of the 22 million jobs lost at the start of the pandemic.
What happens to consumer spending — if personal income drops due to a persisting pandemic and government stimulus reductions — is concerning. If incomes drop too much, spending will also, and we may see a contraction in corporate profits. It’s starting to look like there’s been enough saving through the crisis that the economy can keep recovering if it continues to open up. The critical risk that would throw us into another recession would be if, for longer than four to five months, lockdowns and job losses continue, but government stimulus isn’t there to support additional spending after consumers burn through household savings.
What’s Going On
New Phone Who Dis: “Google just wrapped up its fall hardware event where it debuted the Pixel 5, the less expensive Pixel 4A 5G, the oft-rumored Chromecast with Google TV software built in, as well as the Nest Audio smart speaker. It’s a lot of good news for people who like new hardware. All said, the quick half-hour event contained mostly announcements we expected, but there were a few unexpected surprises.”
Direct Issues: “Palantir Technologies and Asana made history by both completing direct listings on the New York Stock Exchange on the same day, a milestone for the little-tested way to go public. But Palantir’s debut was mired by technical issues with Morgan Stanley software that prevented some existing investors in the company from unloading shares for much of the afternoon, throwing into question whether there are more sellers waiting in the wings.”
To Compete or Not To Compete: “The Justice Department is investigating whether acquisitions by Medtronic limited competition in ventilator manufacturing, an antitrust probe that emerged from complaints about device shortages during the coronavirus pandemic…The probe is centered on a series of events that date to 2012, when Covidien PLC, a device maker that sold ventilators, bought Newport Medical Instruments, a small California-based manufacturer of ventilator systems, for $108 million.”
Eye on the Raise: U.K.-based used car platform Cazoo improved its valuation to $2.5 billion after securing $311 million in new funding, French all-in-one digital marketing platform Sendinblue raised $160 million, Latin American online grocery delivery platform Jüsto added another $5 million in funding and Baltimore-based fintech firm Facet Wealth collected $25 million “as it readies a new business line pitching financial planning as an employment benefit to businesses looking to recruit top talent.”
Heavy Hits: “American Airlines and United Airlines will go forward for now with a total of more than 32,000 job cuts Thursday after lawmakers were unable to agree on a broad coronavirus-relief package.”
Return of the MAX: “Boeing got a tentative personal endorsement for fixes to its beleaguered 737 MAX from the head of the Federal Aviation Administration after he personally took one of the jets on a test flight.”
The Joy of Pepsi: “Strong global snack and food sales and improvement in the company’s beverage business drove revenue growth for PepsiCo in the latest quarter.”
Let’s Play Monopoly: “Dozens of top startups and firms in India are working to form an alliance and toying with the idea of launching an app store to cut their reliance on Google.”
Up in the Clouds: “Microsoft and Datadog, which sells subscription software that lets companies see how efficiently their applications are running on cloud providers, announced a strategic partnership that aims to address what has been a challenge for many large companies.”
So, About Those Emails: “Datto, the data management software company best known as the provider that former Secretary of State Hillary Clinton used to back up her emails, has filed to go public, after reportedly filing confidentially to do so in July.”
Pharma Phight: “UnitedHealth Group has acquired prescription medication management startup DivvyDose [in a move signaling] that competition in the online pharmacy space is heating up as e-commerce giants like Amazon and Walmart square off with some of the nation’s biggest insurance companies.”