Dolphin 2.0 Mojo

Posted on December 11, 2021 by Brad Steveson

Q4 has been a busy quarter for Dolphin Entertainment so far. The company has already announced three new Dolphin 2.0 business initiatives this quarter. The first announcement was on October 12th when Dolphin acquired an ownership stake in Midnight Theater. Then Dolphin followed that up on November 22nd by announcing its first generative NFT collection, Creature Chronicles: Exiled Aliens. Finally, Dolphin recently announced on December 8th that it had taken an ownership stake in Crafthouse Cocktails.

This is all good news and it proves that Dolphin is moving forward on its Dolphin 2.0 plans just as CEO Bill O’Dowd has been telling investors all year. These are all additive to the already growing base business commonly referred to as Dolphin 1.0. Even better news, Bill has indicated that multiple additional announcements are expected in the coming year. It would not surprise me to see another 2.0 initiative (or two) announced yet this month and as many as 8 more next year. These announcements should be in the following categories: Consumer Products, Content, Live Events, Equity Stakes.

What does this mean for Dolphin and Dolphin investors? I will admit that it is a challenge to try to model out the additional revenues that these initiatives will create, but I do think we can take a stab at it and at least get an idea or be somewhere in the ballpark of what is possible.

I’ll start with the base 1.0 business. I expect 2021 Dolphin 1.0 revenues to finish the year somewhere around $35m, which would be a 50% increase over 2020 revenues of $24m. Then I am forecasting approximately $44m for 2022, which would be a 25% increase over 2021. Management has commented in previous presentations about expecting a 25% increase in 2022, so I think these estimates are in line and reasonable.

Next, is the hard part, which is trying to forecast Dolphin 2.0. When I start looking at the 2.0 business initiatives, I start by thinking of NFT’s in one bucket and then everything else in another bucket. It is also important to understand that all of Dolphin’s 2.0 efforts are new business initiatives for the company, so there is no history to guide me in this effort. I do have some ideas of what management’s expectations may be from various presentations I have seen and conversations I have been a part of, so I am not completely shooting in the dark, but it is still too early to forecast with certainty. That said, let’s start with NFT’s.

NFTs are difficult to model, so it is important to understand there is a wide range of possible outcomes. I am largely basing my thoughts on the first drop referenced above where the company clearly stated they expect to sell 10,000 NFT’s for $200 each, which would be $2m in revenue for the company. Since this is DLPN IP, this would be high margin revenue above 90%. If I assume 4 NFT clubs per year with 2 drops from each club worth an average of $2m from each drop, then I get a total of $16m before considering any resale commissions. Dolphin would earn approximately 7.5% of any resales of their NFT’s on the secondary market. Dolphin could have some NFT’s that are a flop and likewise they could land a great partner with more valuable IP and post a bigger number than $2m for a drop.

Next the other Dolphin 2.0 initiatives are each going to be unique and varied, so again I have to step out on faith in my assumptions. If we assume 5 of the 10 possible initiatives driving revenue next year are successful and they deliver $2M each, then that would be another $10m in revenue. I am modeling about 40% margins for this revenue.

Using the assumptions described above, I come up with additional revenue from 2.0 initiatives of approximately $26m for 2022. What does that mean for earnings? I could see a 2022 EPS number of $1.50 to $1.75 if what I described above is realized. It could be as low $0.40 to $0.55 if Dolphin 2.0 efforts are largely a flop. It could also be somewhere in between and still be exciting when you consider that the company should finish this year at -46c EPS. If you factor out extraordinary items such as ppp loan forgiveness and FV changes in warrants and derivatives, that number would still be approximately -7c, so the potential for a remarkable year ahead is real. If the street can see that Dolphin is having success in their 2.0 efforts, it is not a stretch to think the stock will be valued significantly higher.

There has been plenty of research and discussion on Dolphin at Breakout Investors, where we have been busy digesting and analyzing some of these announcements. The most recent discussion has centered on the latest announcement around Crafthouse Cocktails. You can join that conversation on this research post in my breakout room. After a simple registration, most of the content on the Breakout Investor Platform is free.

Disclosure: I am long DLPN and may buy or sell shares at any time.

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