Sunday Stories 003

Today’s Sunday Stories is a bit different. We’re doing a deep dive into ODDITY Tech, the ‘consumer tech firm behind beauty brands IL MAKIAGE and SpoiledChild’ as per CPG Wire. They recently IPO’d on the NASDAQ and were the topic of Commerce Twitter for a few days.

So in true ‘business nerd who happens to write a newsletter’ fashion, I read through their F-1 this weekend and broke it down for us to review.

Here’s a quick summary:

• Their business financials are incredibly solid at 70% Gross Margin and 17% Adjusted EBITDA

• They invest heavily into product development and tech

• They run aggressive quiz funnels and trial programs for acquisition

• They use all the data they capture to launch new products and brands

At IPO their share price spiked by 35% [source]. Pretty baller if you ask me. I want to make this actionable, so in the following sections I’m going to include a quick lesson that we can take away from ODDITY’s business.

Table of Contents:

• Tech and Product Development

• Customer Acquisition and Retention

• The Business

• Opportunities and Misc. Comments

Let’s get one thing clear first: they’re not a tech company. They’re a holding company with a research division and two brands (IL MAKIAGE and SpoiledChild). Not hating, just keeping it real.

Their investment into developing better products though is definitely what sets them apart. Their headcount is made up of 40% tech roles—engineers, data scientists, and computer vision.

They also acquired a company called Revela, which was a biotech firm that specialized in developing new molecules. NEW MOLECULES.

This creates such a defensible moat for them. They’ve in-housed the research and product development aspects of their business, which allows them to create better products, identify new product and growth opportunities, and go to market at lightning speed.

Case in point— SpoiledChild, their second brand, did $25.9 million in its first 11 months.

They run a quiz funnel which, by itself, is already a great acquisition tool. But they take it a step further and use the over 1 billion data points they’ve collected from over 40 million users to inform both their acquisition and retention funnel. Simply put, they understand their customers better than their competitors.

After a user completes the quiz, they’re presented with a ‘try before you buy’ offer alongside a subscription upsell with incentives such as a gift with purchase, a discount, and free shipping.

With their contribution margin, they can tolerate a pretty high CAC I’d imagine. Couple that with the upsells and how good their product seems to be, and their payback is probably baller. Their growth marketing machine seems to have the perfect formula.

Another tactic to note is their app Kenzza, which is how they collect content from influencers and customers for not only UGC but I’d have to imagine for their computer vision efforts as well. This drives their content engine as well as provides them more data points on their customers.

Gross Margins of 66-70%; Adjusted EBITDA of 17.2% in 2023. Just a really, really healthy business.

Here are some highlights I had ChatGPT summarize:

Revenue: ODDITY's revenue growth is remarkable. In 2022, they reported a total net revenue of $324.5 million, a substantial increase from $222.6 million in 2021 and $110.6 million in 2020. This growth is primarily driven by sales of their beauty and wellness products through their online direct-to-consumer model, including a $25.9 million contribution from the launch of SpoiledChild in February 2022.

Profitability: ODDITY has managed to maintain profitability despite their rapid expansion and significant investments in innovation and technology. In 2022, they reported a net income margin of 6.7%, up from 6.3% in 2021. This improvement in profitability is a testament to their effective cost management strategies and the success of their business model.

Gross Margin: ODDITY's gross margin, which measures their gross profit as a percentage of net revenue, is also noteworthy. In 2022, they reported a gross margin of 67.2%, slightly down from 68.8% in 2021. This indicates that they are able to effectively manage their cost of revenue, which includes the costs to procure their products, shipping costs, and other related costs, and generate a significant amount of profit from their sales.

Adjusted EBITDA Margin: ODDITY's Adjusted EBITDA margin, which provides a measure of their operating profitability, was 12.2% in 2022, slightly up from 12.0% in 2021. This indicates that they are able to generate a healthy level of earnings before interest, taxes, depreciation, and amortization, adjusted for certain non-recurring items.

Order Billings: ODDITY's order billings, which represent the total value of orders placed by customers, grew to $395.5 million in 2022, up from $267.8 million in 2021. This represents a 4-year compound annual growth rate (CAGR) of 100%, highlighting the rapid growth of their business.

I’m really impressed with their New Ventures arm. They started an incubator to launch new brands based on the data they capture, and they’ve in-housed the actual product development end of things. Imagine having a billion data points on a certain customer base, running algorithms to piece together what people need, and then immediately being able to develop and test the products. It’s experimentation at its finest.

No wonder SpoiledChild hit $25.9 million so fast.

In summary, ODDITY is a tech-enabled makeup brand that has baller margins, acquires and retains its customers incredibly efficiently, invests in creating the best products it can, and is using all of the data they capture with the talent and resources they've hired and acquired to launch new brands as well.