Back in 1953, a sliver of Americana known as Playboy (NYSE: PLA) was born. Built from the ground up by a entrepreneur affectionately referred to as "Hef" (Hugh Hefner), Playboy Enterprises has expanded from a small-circulation girlie magazine into a vast empire of adult-related entertainment items.

The company didn't grow to superstardom over night of course. When the internet was born, many felt that Playboy was on the verge of ruin, but, to its credit, the company managed to survive and even thrive despite difficult operating conditions.

The Latest Numbers
In May, the company reported its first-quarter numbers. They were decent. Thanks to strong licensing revenues, the company managed to earn four cents per share - handily exceeding the penny-per-share profit analysts had been expecting.

And although some expect circulation for its Playboy magazine to wane in the second half of the year, the sentiment is that advertising revenue will help pick up some of the slack, and that this coupled with ongoing cost-cutting could allow the company to have a pretty decent year.

Playboy's Still Got Game
Of course there are a number of other things that the company is doing well that I think will pay-off going forward.

It's built its website from a small online presence into a pretty detailed site, full of high-margin premium content. Also, it has established relationships with companies such as HBO and Showtime which are potentially an excellent means of distribution for content and licensing arrangements.

As well, The Girls Next Door on E! is attracting a lot of viewers, which in turn is helping to drive the Playboy brand among the masses. Although Playboy is generally associated with "porn", the company's logo is printed on a variety of items that people in all demographics buy -from key chains to towels.

Playboy puts out content for domestic television under the Playboy and "Spice" names. The latter has become increasingly popular thanks to new content with titles a little too risqué to mention in this article. Internationally, its TV programming appears to be gaining decent traction, which could translate into other sales of merchandise and licensing deals.

Don't Forget About Hef
Despite his age, Hugh Hefner is seemingly everywhere these days - and remains probably the best advertising the company could ask for. The company sports nearly $60 million in combined cash and equivalents and property and equipment on its balance sheet. That's about $1.78 per share. Not too shabby for a stock trading in the $10 range.

As well, Hef's company continues to generate solid operating cash flow. Wall Street expects the company to earn 20 cents per share this year and 43 cents per share next year. Those are serious growth expectations. If Playboy is able to meet those objectives, I think it could garner a host of sell side interest in the stock. (To learn more, see The Essentials Of Cash Flow.)

And don't forget that Playboy has an ongoing relationship with Palms Casino Resort in Las Vegas. The hotel basically offers a Playboy themed villa, nightclub and other similar entertainment options. In return Playboy receives a licensing fee for its brand. Going forward, management has suggested that it will create other high-margin licensing deals which could prove to be aboon to earnings in the coming years.

The Downside
Of course, it's not all fun and games over at Playboy - there are a few risks worth mentioning.

For example, the advertising business in general is somewhat sluggish. Going forward this could hurt the number of ad pages the magazine sells, and there remains plenty of competition out there. The DVD and adult entertainment business is a growing industry. Playboy used to be one of the few big names in adult DVDs, but there are now lots of big-name players out there.

Also, Heffner is getting older and might not be able to market the company as often or as well in the next decade as he has in the past. Remember, part of the Playboy allure is Heffner's youthfulness and charisma. If he loses that, it could hurt the attractiveness of the brand as a whole.

The Bottom Line
Right now I think that Wall Street is banking on the company's ability to grow its high-margin licensing business. However, competition and a general economic slowdown could delay these goals considerably.

The Playboy brand is probably one of the most recognized brands throughout the world. And going forward, I would argue that it will continue to grow despite increasing competition and the risk that one day its greatest promoter, Hugh Hefner, will no longer be with us.

Long story short, if the company can meet the consensus numbers I think that the stock could trade to the $15 level within the next 12 months to 24 months.

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