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Can Playboy pull a rabbit out of the hat?


Given that initial public offers of Internet stocks are now again popular, several analysts think Playboy may be preparing Playboy.com for a spinoff. Hefner's recent purchases, according to Playboy, were partially sponsored by funds the firm gave him for his ownership interest in Playboy.com.


Shopping 8% of Playboy's revenue comes from licencing, and business there is booming. Revenue from licencing increased 30% over the first three quarters of the year, and operating profits increased 41%.

There is still a tonne of space for improvement.


The Palms Resort and Casino's Playboy Tower is scheduled to debut in the spring of 2019. Playboy is also looking for other casino licencing agreements in London and Macau. The business claims that over the course of the following three years, it will open at least three Playboy outlets.


In the coming years, entertainment and licencing should both have high double-digit profit growth, according to CFSB's Drewry. Additionally, he predicts that Playboy will generate $24 million in free cash flow in 2005, up from around $13 million in 2004.


Cost is an issue: Journalists and scantily clad women Will the faltering flagship publication vanish? Playboy is more inclined to promote it to support its brand. The publication company is brand driver,” says Harvard.


Furthermore, some issues at Playboy, which continues to be the most popular men's publication in the world and the United States, might only be short-lived. A 23% increase in paper prices this year hurt the magazine's profitability.


Given the erratic nature of paper prices, this might change. The business also launched an online edition in August that has about 10,000 users so far. Additionally, Playboy is launching two more overseas editions.

But publishing has structural issues that are more difficult to fix. Sales at newsstands are often low. Additionally, Playboy has much higher editing costs than other magazines.


It seems that paying ladies to remove their clothes is more expensive than paying journalists to write stories.

According to Drewry, peak operating margins at Playboy's publishing division could be in the 5% to 7% range, as opposed to 14% for Time Warner's publishing division (TWX, news, msgs).


However, 32% of revenues come from publications, making it difficult to ignore. Drewry believes that the company's overall operating margins will be lower than those of its media competitors, which is explained by the weak profitability in this division.


Due to this, international TV programme sales and licence agreements are even more crucial.

Following the hare, Investors are also bothered by other problems. What happens, for instance, to Hefner's majority stake after his passing? His boys, who are in their mid-teens, have access to his shares through a trust.


If the trust's terms restrict the sale of the business or who decides on a change of control until the sons are adults, this could reduce the value of any prospective takeover premium in the stock. Then there's Hef's wonderful lease on the 29-room Playboy home in Los Angeles, which sits on 5.5 acres. In 2004, Hefner gave the business $1.3 million to pay the rent and employee costs. 


In 2005, Playboy's portion will be around $3.5 million, which will reduce earnings per share by around ten cents a share. The business claims that these expenses are justified.


The mansion is frequently rented for corporate functions like sales gatherings, magazine photography, and film production. The ambience of the home and the extravagant events Hefner hosted there help to promote the Playboy name. The home is one of Playboy's secret assets, along with an art collection and a photo library, according to Boyar, a hard-nosed value manager.


For example, Playboy paid $1.1 million for the mansion in 1971. It currently has the property valued at around $1.6 million. According to Harvard, the mansion's most recent appraisal was for around $45 million. This equals $1.36 per share.


Playboy shares are more alluring than they would first seem thanks to hidden assets like the house, which operate something like airbrushing.

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