DLPN Update After Earnings

Posted on November 23, 2021 by Florian Buschek

After an unpleasant but ultimately irrelevant delay Dolphin Entertainment DLPN (disclosure: long) reported earnings on Friday and had a call on Monday. Please see the transcript with my highlights on the Breakout Investor Platform

For our most recent update with Breakout Investors Josh Ebben and Brad Steveson see this prior post.

DLPN also launched Creature Chronicles: Exiled Aliens, Its First Generative NFT Collection by former Marvel Studios’ Artist, Anthony Francisco. The sale should start on December 13 with a revenue potential of up to $2M at high margin to the company.

A few highlights from the call (spoiler: Bill is excited):

  • “let’s talk about Dolphin 2.0. As a reminder, for anyone new on the call or to the Dolphin story, we define the work of our Super Group under Dolphin 1.0 as the very best at marketing pop culture. And we define what we called Dolphin 2.0 as using pop culture to market assets that we own.”
  • The self owned NFT business, one of which is Exiled Aliens will come at high margin to Dolphin and be recurring revenue to some degree: There will be further editions and every resale throws off 7.5% to the company.
  • ambition to develop and program global NFT collections targeting all of Dolphin’s verticals, including the sports, film, television, music, gaming, e-sports, culinary lifestyle and charity industries.
  • And imagine receiving issue #1 of one of the classic DC or Marvel Comics, right? If you’re a collector, you’ll almost to collect all 10 episodes. And that’s exciting for us. That’s what I mean by future NFT drops.
  • Similar for other NFT initiatives that are not self owned but at lower margins.
  • If they do this right the sky is limit. Imagine NFTs related to James Bond or Marvel, ie existing IP with huge fan bases. If little Dolphin could get that done….. They certainly have the expertise and marketing prowess.
  • The NFT technical infrastructure comes from FTX (“wallet provider with over 1 million active users and over $10 billion of average trading volume per day“)and they utilize the Solana Blockchain. Bill highlighs its speed and environmental aspects. They take every form of payment: credit/debit cards, USD, BTC, ETH, ….
  • Bill certainly gets it when it comes to the future of NFTs: “everyone agrees that the future of NFTs is in utility that the NFT allows you to do something or receive something.”
  • I was lukewarm about the Midnight Theater Ownership Stake. However as explained on the call this seems to be something special with a very broad audience and with low breakeven: the 160 seat theatre needs not be sold out to generate handsome profits. It is in the final stages of construction, and we expect to open by the end of the first quarter of next year.
  • There is the “possibility to expand into other cities and with our plan to launch NFT collections across all the industries at Dolphin companies currently market.” like Miami, Los Angeles, Nashville, London or New York.
  • Bill called out “there’s 2 challenges. You have to be able to program it. You got to be able to market all those different packs.” Dolphin is very strong in both of these aspects so “you’ve eliminated what’s usually the challenge and you’re left with what’s usually the positive.
  • The balance sheet is strong. They are EBITDA positive and generating cash. It is a bit strange that they issued some convertibles but the amounts are not large and I get the sense Bill wants to have cash available for opportunistic moves like acquisitions. Note those convert basically at the market at time of conversion so it is like issuing shares at the conversion price. I am not a huge fan of that but ultimately it is no big deal. Especially since they usually put cash to good use.
  • Dolphin 1.0 consists of 6 companies now and they are firing on all cylinders. Bill is highlighting future cross selling opportunities.
  • In terms of recovery from Covid: “2 big areas, motion pictures have started to come back in theaters, which is great.” “one that’s still out there that hasn’t recovered yet is the restaurant business.
  • So despite motion pictures still being down and restaurants having to get going entirely (in 2022) the business is booming for Dolphin 1.0. “That’s 41% organic growth from the existing subs”
  • Highlighting Be Social, its expertise is in influencer marketing, and that will help tremendously for all NFT initiatives and generally everything related to Dolphin 2.0.
  • In terms of operating leverage Bill emphasized they needed only 1-2 more people specifically for the NFT business, which will contribute materially in 2022 at high margin. Reading between the lines, that aspect, full recovery in Dolphin 1.0 and increasingly more cross selling should help margins quite a bit.

So Dolphin has been and remains a very exciting story. The stock has lost momentum and got beaten down with plenty other “NFT and story stocks”. So what? Put it in the drawer and check back next year.

You have a microcap company with solid financials, strong organic as well as inorganic growth in the base business Dolphin 1.0 and you get the upside from the ownership stake driven Dolphin 2.0. The real call option is the NFT part that you get essentially for free. It does fit well to DLPN. They excel at marketing and programming, reaching a community and that’s what it’s all about.

A lot depends on how Bill will navigate the company though all this but he seems absolutely capable of leading Dolphin to much greater success than he already has. The foundations are in place, let’s see him execute.

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