An excellent writeup & I have largely similar concluding sentiments, however while you note it's impossible to own with Kohn, that's why the liquidation alpha opp. exists.
yeah I'm sympathetic to that view, but I think you need a line of sight to Kohn actually leaving. I guess McGough's argument that his leash is very short is one point in favor of an imminent departure (barring a quick, sudden turnaround in results).
Another which I didn't mention is them bringing on Crossman, another Rizvi partner and someone who has a lot of CEO experience. It is notable that he is both COO and CFO, and is taking over some efforts right away.
You would think that Rizvi brought him in for *if* Kohn doesn't get it done or, perhaps, simply to replace Kohn pretty much no matter what; once Crossman learns his way around the business, Kohn can resign at, say, the end of 2023. Kohn is only 49, his former partners might want to give him a graceful exit so he can go screw up someone else's business (I kid, I kid).
But a couple of concerns. One, as I alluded to in the piece, I think you have to be long into another earnings report and sale news, and boy I don't like that.
Two, which I didn't mention...are we sure the licensing business is worth $200M-plus? It seems conservative based on what those businesses go for (we recommended NATH here last year, which I still own, and that's freaking hot dogs!).
But they did $47M in licensing revenue in 2010, with a strong Q4. They did $61M last year; excluding the impact of cash receipt timing, the figure was still down double-digits y/y in Q1. The narrative that the brand is really strong in Asia is kind of coming from Kohn and PLBY, and maybe that's not just actually the case if licensing revenue is going to grow <1% annualized from 2010 to 2023 (some pretty good years in both the US and China).
And, three...are we sure that Rizvi Traverse isn't a big part of the problem here? I mean, they've been involved here for more than a decade. They put Kohn in, have *kept* Kohn in, backed the in-house strategy, likely had something close to veto power over the acquisitions given 25% ownership (and no other 5% holder)...pretty hard at this point to absolve them of any responsibility.
And so if the endgame here is another weak quarter, and then Crossman replaces Kohn (Rizvi is not firing both of them, and I think it's unlikely they pass over the ex-partner they just hired as COO)...does that change the story long-term? Short-term, is the stock up 18% on the news at 11 am and then up like 7% at 4 pm as investors realize, "hey, what exactly are we changing here?"
I could write another 10,000 words on this story (as should be apparent from this comment) - I think it's fascinating. It's also a story where any outcome will in retrospect look blindingly obvious. If PLBY tanks, *of course* an overleveraged de-SPAC down 97% from its highs and resting on a dated brand kept falling. If it rallies, well, look how obvious the fundamental case was!
And forced to choose, I'd probably take the side of being long. I just can't *quite* get over the hump. That might be exactly your point, however: it's precisely the ugliness of the story that keeps the market from appropriately pricing in a valuation floor under the business no matter who is running it, and seeing the potential for triple-digit upside if competent management can actually execute on this more simple strategy.
In my experience it's extremely hard to grow a business based on licensing.
If your licensees do poorly, you won't collect much fees. If your licensees do well, they will try everything to keep the business to themselves and you will never collect as much fees as provided in your agreements. There will be huge discounts as you rely on your stronger licensees.
Well, it depends on how strong the brand is, right? The issue really isn't stronger licensees not paying what they owe - it's more who wins when the time comes to renegotiate. Who needs who more?
Valuation here is light enough that I think even stable licensing revenue gets you upside if they can monetize the rest of the business. But broadly speaking, yeah, the lack of control (particularly with a China JV) is a risk.
I agree with your rationale here. I witnessed that even some of the strongest brands struggle in trying to collect fees, which is why I put low expection on the profitability of such model. However, if the vauation is cheap enough, there could still be upside.
Maybe pull up a chair at RICKs and play it again as time goes by?
An excellent writeup & I have largely similar concluding sentiments, however while you note it's impossible to own with Kohn, that's why the liquidation alpha opp. exists.
yeah I'm sympathetic to that view, but I think you need a line of sight to Kohn actually leaving. I guess McGough's argument that his leash is very short is one point in favor of an imminent departure (barring a quick, sudden turnaround in results).
Another which I didn't mention is them bringing on Crossman, another Rizvi partner and someone who has a lot of CEO experience. It is notable that he is both COO and CFO, and is taking over some efforts right away.
You would think that Rizvi brought him in for *if* Kohn doesn't get it done or, perhaps, simply to replace Kohn pretty much no matter what; once Crossman learns his way around the business, Kohn can resign at, say, the end of 2023. Kohn is only 49, his former partners might want to give him a graceful exit so he can go screw up someone else's business (I kid, I kid).
But a couple of concerns. One, as I alluded to in the piece, I think you have to be long into another earnings report and sale news, and boy I don't like that.
Two, which I didn't mention...are we sure the licensing business is worth $200M-plus? It seems conservative based on what those businesses go for (we recommended NATH here last year, which I still own, and that's freaking hot dogs!).
But they did $47M in licensing revenue in 2010, with a strong Q4. They did $61M last year; excluding the impact of cash receipt timing, the figure was still down double-digits y/y in Q1. The narrative that the brand is really strong in Asia is kind of coming from Kohn and PLBY, and maybe that's not just actually the case if licensing revenue is going to grow <1% annualized from 2010 to 2023 (some pretty good years in both the US and China).
And, three...are we sure that Rizvi Traverse isn't a big part of the problem here? I mean, they've been involved here for more than a decade. They put Kohn in, have *kept* Kohn in, backed the in-house strategy, likely had something close to veto power over the acquisitions given 25% ownership (and no other 5% holder)...pretty hard at this point to absolve them of any responsibility.
And so if the endgame here is another weak quarter, and then Crossman replaces Kohn (Rizvi is not firing both of them, and I think it's unlikely they pass over the ex-partner they just hired as COO)...does that change the story long-term? Short-term, is the stock up 18% on the news at 11 am and then up like 7% at 4 pm as investors realize, "hey, what exactly are we changing here?"
I could write another 10,000 words on this story (as should be apparent from this comment) - I think it's fascinating. It's also a story where any outcome will in retrospect look blindingly obvious. If PLBY tanks, *of course* an overleveraged de-SPAC down 97% from its highs and resting on a dated brand kept falling. If it rallies, well, look how obvious the fundamental case was!
And forced to choose, I'd probably take the side of being long. I just can't *quite* get over the hump. That might be exactly your point, however: it's precisely the ugliness of the story that keeps the market from appropriately pricing in a valuation floor under the business no matter who is running it, and seeing the potential for triple-digit upside if competent management can actually execute on this more simple strategy.
In my experience it's extremely hard to grow a business based on licensing.
If your licensees do poorly, you won't collect much fees. If your licensees do well, they will try everything to keep the business to themselves and you will never collect as much fees as provided in your agreements. There will be huge discounts as you rely on your stronger licensees.
Well, it depends on how strong the brand is, right? The issue really isn't stronger licensees not paying what they owe - it's more who wins when the time comes to renegotiate. Who needs who more?
Valuation here is light enough that I think even stable licensing revenue gets you upside if they can monetize the rest of the business. But broadly speaking, yeah, the lack of control (particularly with a China JV) is a risk.
I agree with your rationale here. I witnessed that even some of the strongest brands struggle in trying to collect fees, which is why I put low expection on the profitability of such model. However, if the vauation is cheap enough, there could still be upside.