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- Newly-listed Oddity Tech is still in the red, and this is why it’s so attractive
Newly-listed Oddity Tech is still in the red, and this is why it’s so attractive
Despite the recent stock market rally, 80% of recent IPOs are still in the red, meaning their stock prices are lower than their IPO prices. Beauty-tech platform Oddity Tech ($ODD) is one of them. ODD stock is down 27% from its first day of trading. In ODD’s case, this disappointing post-IPO performance, which is actually the norm, is creating a very attractive buying opportunity.
In its first earnings report as a public company, ODD over-delivered, exceeding analyst estimates and its own expectations across the board. The company’s growth momentum is very strong, and sustainable given the large growth opportunity both in the US and globally. Its AI-powered platform enables the company to gain market share in a highly competitive industry and deliver strong profits at the same time. This is the recipe for significant shareholder returns over the long run. Let’s take a deeper look.
Disrupting The Beauty Industry With The Power Of AI
Oddity Tech is one of the most interesting AI stocks no one is talking about. It’s still very new to the public markets, and many investors haven’t discovered it yet, while analysts have just started to cover it. ODD is indeed an odd company in the beauty and wellness space. It develops beauty and wellness brands with the power of AI.
While almost every company is now touting itself as an ‘AI’ company to benefit from the hype, Oddity is really an AI company and the impressive fundamental performance confirms that. Its first two brands, Il Makiage and Spoiled Child, have both been extremely successful. Il Makiage, founded in 2018, is approaching $500 million in revenue this year, which is a phenomenal performance. Repeat customers will generate more than half of the brand’s revenue this year, which is a clear sign of high customer satisfaction.
As for Spoiled Child, this wellness brand is performing even better than Il Makiage. It was launched in 2022, and this year it’s expected to top $100 million in revenues. The huge success of this brand shows that Oddity is successfully leveraging consumer data to make the right decisions and launch products that will perform well. Like Il Makiage, more than half of Spoiled Child’s sales this year are expected to come from repeat customers in a sign of high product quality and customer satisfaction.
Both brands are still in the very early stage of growth. Oddity operates in a $518 billion global beauty and wellness market and has just started to capture market share from incumbent brands. Spoiled Child products are still not available outside of the US, and the company doesn’t plan to expand globally in the near term, given the significant growth opportunity in the US. As for Il Makiage, which is a more mature brand, Oddity has started to expand globally and is already the No.1 or 2 online beauty brand in every market it has entered. This solid performance underscores Oddity’s data advantage, which enables the company to make the most effective and efficient decisions to drive strong results.
Oddity plans to launch 2 more brands in 2025 but also plans to develop new molecules for beauty products in its ODDITY LABS. The company plans to launch 10 products from ODDITY LABS in the coming year, with a substantial pipeline for future launches.
ODDITY LABS is a biotech R&D center that uses AI-based molecule discovery, phenotypic screening, and other cutting-edge technologies to develop new products for the beauty and wellness market. It was formed in 2023 through the acquisition of Revela, a Boston-based biotechnology startup. ODDITY LABS is expected to play a major role in the future growth of Oddity as the company's technology has the potential to revolutionize the way that products are developed and tested and to create new products that are more effective and safer for consumers.
The Power Of AI Reflected In The Financial Performance
Oddity Tech’s top and bottom-line performance is quite impressive as the company is growing very rapidly and efficiently. No cash burn due to aggressive sales and marketing spending. Its data-driven product development and targeted customer engagement have helped Oddity achieve high growth rates and significant operating leverage at the same time. In Q3, its revenue jumped 37% y/y to $95 million, exceeding analyst estimates, driven by the strong demand for the products of both brands.
The strong marketing leverage is evident by the fact that Il Makiage’s user acquisition costs declined 40% y/y in Q3, despite the continued strong growth. Oddity Tech uses innovative growth strategies to achieve efficient growth. For instance, it has launched Kenzza, a social media platform and influencer app that empowers consumers to find their perfect beauty and wellness routine. The app connects users with a community of micro-influencers, providing personalized recommendations and product reviews based on individual preferences and needs. This app encourages the creation of user-generated content, resulting in organic and low-cost customer acquisition.
These smart, data-driven growth strategies allowed ODD to increase its operating income by 70% y/y in Q3, significantly faster than the revenue growth over the same period, thanks to the operating and marketing leverage. Despite the rapid growth, ODD is already very profitable, with adjusted profit margins of around 17%, meaning that there’s still significant room to increase profitability as the company grows and matures.
What About Valuation
As a high-growth, AI-powered beauty and wellness company with extremely dynamic fundamentals, Oddity’s stock price will fluctuate dramatically for the foreseeable future. At current prices of around $34 per share, it trades at a PS ratio of 4, which is a pretty low multiple, compared to the PS ratio of e.l.f Beauty ($ELF), another high-performing beauty brand.
If ODD’s strong fundamental performance continues in the coming year, its valuation multiple can easily rise to over 5x sales. Assuming it rises to 5x, and based on analyst estimates for 2024 sales of $593 million, the stock can rise 50% from current prices and reach $51 by the end of 2024.
Oddity is a very interesting and unique growth company. However, there are plenty of risks to its growth story. Developing new brands from scratch is challenging, and no one can guarantee that Oddity’s future brand launches will be as successful as the current brands are. Also, its AI competitive advantage may not last as every company can now leverage AI to improve its products and services, so the competition will likely increase significantly in the future, which can put pressure on Oddity’s growth rates.
Despite these risk factors, Oddity seems like it‘s well-positioned to win and become one of the top players in the global beauty and wellness markets. Its cheap valuation and strong underlying performance make $ODD a good buy.
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