New Company--an $ODD AI Play

[JabbokRiver42]

Oddity Tech, Ltd. ($ODD) came public on July 19, 2023 with a valuation of 2.7B. Unlike many IPOs they were already profitable.

Oddity Tech was co-founded in 2013 by brother-sister team Oran Holtzman and Shiran Holtzman Erel. Oran is the CEO and Shiran is the CPO. The company has operational headquarters in New York, R&D headquarters in Tel Aviv, and most recently acquired a proprietary lab in Boston.

While they produce beauty and wellness products, they consider themselves a tech company because of their tech-centric business model and R&D process. The headline on their IR page is “Transforming Beauty and Wellness Through Technology.”

BRANDS

Currently, their products include two brands with two more in the pipeline:

1. Il Makiage is a cosmetics brand that was a high-end, private company founded by a New York makeup artist in 1972. The brother and sister co-founders of Oddity bought it and re-launched it in 2018 with an eye to disrupting the beauty market with technology.

2. Spoiled Child was developed by Oddity and launched in February of 2022 to focus on skin care, hair care, and supplements.

3. Approaching launch in the next year is a third brand that will be more medically oriented, helping with acne, eczema, and perhaps other conditions. No name for it yet.

4. There’s a place-holder for a fourth brand, but no hints yet about that focus.

Launching all the time are additional products within each brand and the goal is that every brand reach at least $1B in revenue. The brands remain separate with their own leadership teams but share the technology stack, data, and vision of Oddity as the parent company.

Here’s a slide from their investor deck.

FINANCIALS

A couple of highlights from their March 5 earnings to interest the numbers people and then I’ll get into why they hooked me into a position, despite a couple of risk factors that usually make me more cautious.

Highlights from their Q4 2023 earnings release:

• Record full year net revenue of $509 million, up 57% from a year ago
• Record net income of $59 million, up 169% from a year ago, and record adjusted net income of $77 million, up 181% from a year ago
• Record adjusted EBITDA of $107 million, up 172% from year ago
• Record $85 million of free cash flow generation

A couple of slides from their investor deck.

One of the things that makes the company an odd choice for me personally is that the C-Suite exec who tipped the scales for me is not the co-founder and CEO Oran Holtzman, but their CFO, Lindsay Drucker Mann, who they brought in from Goldman Sachs in 2021. While at Goldman, she was spearheading their research into consumer behavior among millennials.

Here she is at their IPO, explaining why she made the jump (about 8.5 minutes):

Oddity Tech CFO talks IPO, AI tech to improve sales

SPECIAL SAUCE

So what is all this tech they claim as their special sauce? This was a major hook for me.

They appear to have acquired their way into their various tech capabilities, so were they good acquisitions?

The first one was the e-commerce platform and Israeli start-up NeoWize. Oddity picked it up in 2019. It advertises itself as an AI company that personalizes e-commerce. A key part of Oddity’s strategy is to be a digital-first company that sells online, so it makes sense this was the first acquisition.

But is it a good company? Here’s what the Jerusalem Post had to say about NeoWize at the time of its acquisition by Oddity (actually acquired specifically for the Il Makiage brand at the time):

Founded by three veterans of elite IDF intelligence units, Ronen Ness, Omer Nevo and Yoav Cafri, NeoWize leverages data to make predictions on customer behavior even on the first visit, an approach which it claims can improve sales by 20-30 percent from the first day."

Current deep learning algorithms focus on making the most out of the data available. NeoWize utilizes active machine learning, neural networks and adaptive input to create more data and better data, thus increasing its predictive power even with limited available data," the company says.

That’s the smiling face of co-founder and CPO Shiran Holtzman Erel that you see with that article. Her LinkedIn profile says she has a degree in accounting and economics, but also that she served in the Israeli Air Force. My guess is that she was the one who found NeoWize, given its origins.

I think the same is likely true of their second acquisition, Voyage81, which Oddity (again through brand Il Makiage) picked up in August of 2021. That is the “computer vision” that the CFO keeps mentioning. It’s another Israeli start-up and Jewish Business News describes its capabilities this way:

Voyage81 is a deep-tech AI-based computational imaging startup and the only company in the world to develop patented software that brings hyperspectral imaging capabilities to smartphones via its physics-based algorithms.

Voyage81’s algorithms extract 31 channels of hyperspectral information from RGB images taken with existing smartphone cameras with 98% accuracy. Their tech can map and analyzes skin and hair features, detects facial blood flows, and create melanin and hemoglobin maps from a smartphone alone. So, this tech will obviously be of use to a make-up company like Il Makiage.

The CEO of Voyage81, Niv Price, is now the CTO of Oddity and, according to the above article, Price is the “former head of R&D at the IDF’s elite technological unit 81”

When you look at the capabilities of just that one acquisition and then start to think about how that level of imaging can give a uniquely personalized set of cosmetics, skin care, and medical grade recommendations, it’s jaw dropping. That is exactly the kind of tech that eliminates the need to visit a store for cosmetics. It doesn’t just make the experience easier, it makes it better in terms of product fit for each individual.

While not yet fully integrated into the selections of their brands, customers will be able to upload their face and get products that are exactly the right match for them. Hoping their cybersecurity is good!

The third acquisition, just made in June of 2023 brought in Revela Labs at Harvard. It’s a molecule discovery lab that is putting the science of bioengineering and AI techniques to work to find the best molecules for use in beauty and wellness.

Here’s about five minutes of Lindsay Drucker Mann talking about what the Revela acquisition last year brings to the company:

Oddity Global CFO on the company's acquisition of Revela, AI, and the future of product development

Revela’s CEO, Dr. Evan Zhao, was introduced on the earnings call as Oddity’s Chief Science Officer, but I don’t see him yet on Oddity’s website.

RISKS AND MOAT

Here’s the slide in their deck about their moat and TAM.

Of course there are the standard risks that they won’t be able to do what they say, that the tech is inferior to others, etc. In theory another company could do what they do, but, as the CFO noted in the first video I posted, these folks are driven. They will work themselves into the ground, which has so far produced lots of financial success very early–one of the reasons the CFO left Goldman to join them. It has also given them a strong first-mover advantage.

Co-founder and CPO Shiran Holtzman Erel seems to be the member of the family with the people skills. This is her description of what it took to get to their IPO. The mission she describes is to remake an industry, but I don’t yet know why this is the industry that inspires such dedication and therefore can’t gauge how easy it will be to convince others to give this much of themselves to it. Employee satisfaction and retention is, from what I see, a risk factor.

CEO Oran Holtzman appears to be an extreme introvert. I’ve found exactly one video of him and it’s in Hebrew. I was able to get the gist by taking the auto-generated Hebrew transcript and running it through Google translate, which is as garbled as you might imagine it would be. But he begins by explaining how he is giving this talk basically under duress because they had a successful IPO and he’s the CEO. He says he avoids such events at almost any price.

So the CEO won’t be the one out there stumping for the company. The CFO is an excellent spokesperson, but her regular job only gets bigger from here. Shiran’s LinkedIn post above sounds like she could potentially fill that role, but if she’s doing anything, I couldn’t find it. It’s a gap that needs filling.

The next section of Oran’s talk was his grief over the war, which is a reminder that the company has geopolitical risks. Those risks are mitigated somewhat by the Boston and New York locations, but they aren’t reduced to zero. They also sell physical products. While they aren’t in stores, they do have to ship around the world, and the war is disrupting Red Sea shipping. I haven’t figured out where their manufacturing is done, so if that part is outside Israel, that might be less of an issue.

I have only listened to the latest earnings call–from March 5. And the CEO there was a puzzle. He said things like this in his prepared remarks:

We basically grew way more than I wanted us to grow. In my view, there is no good reason to grow 50% at our scale, but due to both SpoiledChild’s ability to blitzscale and IL MAKIAGE’s stronger than expected repeat rate, we landed at a 57% growth rate in 2023 full year.

And about the Spoiled Child brand:

SpoiledChild scaled insanely fast in 2023. Since it was a one-year-old brand, I wanted to test the brand strength and its limits, and therefore, I allowed the hyper growth.

There were CFO comments and some questions about that, too, since the guidance was for a low to mid 20% growth rate each quarter after saying that they had enough visibility to know that they had already reached that for all of 2024.

So I’m confused there. I think what they’re saying is that their vision is so large that they want to reinvest everything above 20% back into the business to develop the new brands and drive into new verticals. Holtzman does strike me as a reclusive personality with enormous vision. But I need more clarity on that.

WHAT I DID

After watching them for a couple of weeks, I bought into a small position on March 12 at $45.07/share. About two hours later they announced a secondary offering (non-dilutive) that ended up pricing at $43.50. So I placed some limit orders and, like Holtzman, grew my position more than I had originally intended. It’s been above or below that since the offering closed on the 19th and I’m now sitting on just over an 8% position.

Ultimately I decided that it’s a huge industry, they have already proven themselves beyond what most companies have at this stage of their development. The potential in their acquisitions speak to a very broad vision that is just getting started. Their profitable and growing quickly. Their CFO gave me confidence, and each piece of tech seems primed to handle the scale of their vision.

At the very least, I think $ELF should be looking in the rearview mirror. I see an enormously competent C-Suite in their areas of expertise. My gut says that down the chain things could be harsh, morale low, and employee turnover high. What I would like to see are more senior hires that have strong skills in team building and demonstrated care for employees just to lay that concern to rest.

It’s an odd choice for me, but here I am.

JabbokRiver
8.13% $ODD

[brittlerock]

This is pretty interesting. A few questions (you may not have answers).

First, how did you become aware of this company?

What prompts you quite negative gut feelings? I admit, I didn’t follow the links and watch the videos, but I didn’t see anything in your write-up that would give rise to those gut reactions.

Was there any additional reasons for apparently shunning 50% growth? That strikes me as a really weird reaction.

It’s a huge, highly splintered market often driven by irrational emotional reactions - in other words, I’m not so sure that their scientific, AI derived customer analysis will yield any better market response than ELF’s TikTok influencer campaign.

[JabbokRiver42]

I didn’t mean to come across as negative, just cautious. I ended up with more than an 8% position–I didn’t shun their growth, I bought it, but I’ll go back to that caution in a minute.

As to how I came on the company, I don’t remember the exact steps that got me to them–I’ve been on the lookout for someplace new to put the money from selling out my Palo Alto stake. Might have been looking at recent IPO’s, or in some category I was browsing on SA, but I came across this SA piece from the end of January on them, which made me start digging more.

You really should check out both the videos and the Voyage81 tech. I almost bought the minute I pulled up the latter. A military-grade facial imaging system that can be used to enhance an image from a regular phone? I’m a woman. I hate, hate, hate shopping for makeup. The color is never right; the options aren’t standardized from company to company and just when you’ve finally spent a fortune to get something that works, the company changes all the packaging and options. Ditto for hair products. The best tech development from the entire Covid era was Zoom giving us a button to “touch up my appearance!”

A technology that can analyze my face and my skin from the selfie on my phone, and pass that along to a lab that has researched billions of molecules to combine into the singular product for my face? And I don’t have to stand forever in the aisle of a store? Are you kidding me? Why would I ever go back to the old way? Analyze my face, send me the products that fit. Done. Take all my money.

Plus, their next brand is going to use that same tech to look for more medical-grade skin issues, while the lab uses AI to find the best molecules to address them. The lab already has the molecule data from pharma and medical studies, they have just never been put to these kinds of applications before. It’s a perfect task for AI to look through all the studies, side-effects, toxicity reports, use cases, and pick the most promising and safest molecules for their products.

They aren’t all the way there yet, but obviously enough people feel comfortable enough with the product that they will buy it online and it’s growing like a weed. Plus, Congress is about to ban TikTok; so, if those influencers are your secret sauce, you’ll have to up your marketing budget.

I was hesitant because management is such a critical thing for me and it’s really hard to get a take on that with a foreign company. The only “oddity” on Glassdoor is a different company entirely.

But Holtzman has been the CEO (and I think still is) of Il Makiage, which is New York based, so I looked that up. Ooof. It’s not a large number of reviews–61–but his approval there is a dismal 14% and only 16% would recommend working there.

Normally that’s a hard pass for me, but this company is structured differently than my others–with different brands, each with their own leadership, and at least so far they have kept on the management of their acquisitions. And cultural differences can play a large role in how management is perceived.

People and relationships are, in many ways, my business. I could see how the strong military influence in Oddity’s leadership and acquisitions, combined with cultural differences, could lead to the demanding and controlling hand described in the Il Makiage reviews and that I heard to some degree on the call. But I could also spot the drive, vision, and challenges of an introvert in a public role. And the tech, if it works as advertised, just blows the doors off their optionality. So I looked a bit further.

Spoiled Child wasn’t an acquisition and it’s too new to have any Glassdoor reviews. NeoWize and Voyage81 are both Israeli companies and not on there at all. Revela, however, is in my Boston backyard so I looked there. Only 6 ratings. None rated the CEO (who is now the Chief Science Officer at Oddity–so maybe Oddity Labs gets a new CEO?), but the six reviews there all sounded the theme of toxic culture and none of the six recommended working there.

All were, however, excited about the research they were conducting, perhaps feeding the deep disappointment that their work wasn’t valued. All at Revela were/are highly-qualified scientists, and I’ve seen first-hand how the best scientists don’t always make the best managers.

On the positive side, I went back again and again to CFO Lindsay Drucker Mann. Great communicator, perfect fit for the sector, highly respected. She gave up a good job she loved at Goldman Sachs to do this. She saw something (which she describes in the first video), and I trusted that instinct.

I also checked out their 2022 C-Suite hire, Jonathan Truppman, who is their Chief Legal Officer, and at least in what I could find he has a strong interest in helping develop a healthy, team-based culture.

Oddity also has strong support from private equity firm L Catterton, which people do like working for and that pledges to help the companies in their portfolio deal with any management issues.

So that’s a too-long way of saying that the incredible runway, vision, drive, tech, and execution thus far; combined with the enthusiasm of the CFO, the warmth in the writing of the co-founder and CPO, and the recent hire of Truppman, made me willing to give them a chance.

JabbokRiver

[brittlerock]

Thanks for the detailed reply.

I’m not all that sure that TikTok will be “taken down.” The concern isn’t really about TikTok, it’s about the Chinese company, Bytedance, the owners of the site. The thinking is that all our precious American data posted on TikTok will somehow be exploited by the nefarious Xi Jinping regime. And Facebook, Youtube, Instagram and I’m sure there are other American social media sites are blocked in China (which should tell you something about how highly the Chinese really value this information). I think (could be wrong) Bytedance would sooner lease it on a cash plus royalty basis to Zuck than to lose the income - Just a guess . . .

Anyway, the TikTok users will migrate to another site if TT goes away, in fact, they might well migrate even if TT is still there. The 18 - 34 demo can be pretty fickle. Elf will follow them wherever they go.

There is an irony to this kerfuffle. There are cameras everywhere in China. The government has assembled an enormous database supporting facial recognition of virtually everyone in China (including visitors, you are photographed and fingerprinted at customs when you enter the country). The Chinese people do not recognize this as a privacy invasion. There has never been such a thing as a “right to privacy” in China, so the government isn’t taking away something that has never been a possession of anyone. The Chinese people view this as benefit as it acts as a deterrent of thievery (property crime is the dominant criminal act in China). My wife sees it that way. Her 40 something nephew sees it that way. Her niece who has lived in Germany for a while, not so much. At the same time you and thousands - maybe more - of women are only too anxious to give this information to an Israeli company. But the Israelis are an ally. They would never do anything that might be construed as “bad.” Maybe I’m being a bit facetious. Maybe not. Moving on . . .

The aversion to growth I mentioned was not directed at you. It was a in regard to what I thought a quite weird statement from the CEO, [quote=“JabbokRiver42, post:1, topic:103241”]
We basically grew way more than I wanted us to grow. In my view, there is no good reason to grow 50% at our scale
[/quote]. How can a CEO assert that there’s no good reason for 50% growth? How can a CEO be disappointed that his company exceeded the rate of growth he desired? It’s just a bizarre statement. Sorry I wasn’t clear.

Finally, much the same as yourself, I too am very concerned about the actual occupants of the C-suite. I worked at Boeing for 30 years under 5 different CEOs (six if you include the short tenure of James Bell). I witnessed the drivers that have led to the destruction of the Boeing’s reputation due to massive product quality flaws.

In my opinion (and I’m not alone in this) it is a direct result of “leadership” of Harry Stonecipher, the former CEO of McDonnell Douglas. He did enormous damage in his first role as COO. And after the board forced Phil Condit to resign, they had the unforgivable stupidity to entice Harry out of retirement to take over as CEO while passing over Alan Mulally who would have been one of the best CEOs in Boeing’s history. Instead, Alan took over as CEO of Ford where he saved that company from disaster.

After Harry was forced out of the company due to an illicit affair with a subordinate, individuals who were eminently unqualified to lead The Boeing Company were recruited as CEO.

Jim McNerney was a dim bulb (we went to the same high school). He wrought little direct new damage to Boeing, but he perpetuated the policies and culture that Stonecipher created. There is no argument that Harry drastically changed the culture at Boeing. He bragged about it.

Post Jim, Dennis Muilenburg was installed as CEO. Two 737s fell out of the sky resulting in the death of everyone on board. IMO, Dennis should have been indicted and found guilty of 346 counts of involuntary manslaughter. Instead, he was just forced to resign with full benefits. At first, he blamed the brown pilots for the accidents (at least, that’s the skuttlebut that came out of Chicago). But not too much later it was found that Boeing had significantly altered the ACAS system. This system can override the pilot’s ability to control flight. It had a software bug.

The changes to the ACAS should have been documented, but that would have led to a type change for the aircraft. And that would have required pilot training. Boeing had guaranteed that any pilot who had been type certified for the 737 would not need any additional training. So the ACAS alterations were Boeing’s little secret. Yeah, but even so, the problem should have been revealed during flight test. But Boeing was hard up against guaranteed delivery dates. Late deliveries would have resulted in rather large penalties. But Harry had changed the Boeing culture. Boeing’s number one priority of being recognized as the world leader in engineering and manufacturing excellence had been fully displaced with attention to the bottom line above all. Flight test was curtailed at Dennis’s direction.

I apologize for veering somewhat OT for this board. But I wanted to provide evidence for why I wholeheartedly agree with you about wanting to know who’s in charge and how they think and behave. Information you’ll never find in a quarterly or annual report. The only thing you will learn about the occupants of C-suite from the company will be glowing PR write-ups about how their backgrounds make them eminently qualified their positions.

You have certainly piqued my interest in Oddity. 8.5% seems a bit much, but I’m anxious to learn more about this opportunity.

[mizzmonika]

I am seriously skeptical about this company. So please forgive me if my comments reflect that - I don’t mean to offend anyone, I’m just not going to edit for kindness toward them.

First, their premise, to be able to get me the perfect makeup from a picture from my phone? That implies that my phone has the technology to analyze my face like, say, those really expensive fancy devices at my dermatologist’s - and even those don’t do much except assess skin damage. Because their analysis can only be as good as my phone’s technology re: taking photos, right?

I really wanted to believe - but to do that I needed to understand HOW they could do this with just a picture from my phone. So I went to their website looking for more.

Their website is nothing but hype, hype, hype - full of buzzword after buzzword - like they chose all the best ones and combined them. Here’s an example of what they say:

AI-based molecule discovery is a transformative frontier in product development, enabled by the advancements in synthetic biology, genomic sequencing, robotics, and machine learning. Using these technologies, we redefine product efficacy through the discovery and development of small molecules, probiotics, peptides, and other biological modalities for the benefit of consumers worldwide.

Are you kidding me? What does genomic sequencing have to do with makeup for me? Or robotics? And what is this machine learning doing? I guess looking at my picture and… then where is it getting the feedback that the makeup worked for me to learn…? No details. Probiotics? Peptides? Peptides have been around for years! Probiotics are just beneficial microorganisms. How are they figuring that out from a picture on my phone?

This screams to me “theranos,” that scam company that promised to do all this analysis from a drop of blood.

But I am a skeptic and so i often discount my initial skepticism. I decided to look at reviews.

Glassdoor: not good.

Product reviews? Go to Amazon and type in “elf makeup” into the search box and look at the stars. Then type in “Il Makiage makeup” and look at those stars.

I’m not saying they won’t be successful. But there are just too many red flags for me.

(EDIT: Sorry I forgot to include this reddit link. Reddit is reddit but they are talking about specifics that to me speak more negatives.
Reddit - Dive into anything)

[JabbokRiver42]

Did you go to the Voyage81 website? That’s where they explain that they have software that can decode the image on your phone. That was one of their acquisitions, developed for the Israeli military.

Maybe it can’t do what they say. I don’t know. But that site doesn’t sound like just hype.

JR

[wpr101]

I was curious if there is some seasonality to ODD’s revenue which make Q1 and Q2 significantly higher than other quarters, or why these quarters have significantly higher revenue then others.

Starting with Q1’22 and going to current Q4’23 the revenue goes like,

90M → 98M → 69M → 68M → 166M → 151M → 95M → 97M

The year over year revenue numbers look good, but I cannot figure out why there would be this much seasonality in a consumer business?

[JabbokRiver42]

This is what CFO, Lindsay Drucker Mann, said about that in her guidance on the Q4 earnings call:

Turning to the first quarter. As we discussed, last year, we deliberately slowed the business down in the back half of 2023 in order to pace our growth while our teams focused on huge preparations for 2024. We entered January with incredible strength and delivered a large acceleration in the business, more than doubling the Q4 pace and doing it very profitably.

We quickly began to pace our sales ahead of plan, which, because of our strong repeat, already puts us in a position to secure our full-year objectives and also leaves us the flexibility to once again begin holding our revenue growth back to leave more room for the future. The muscle and control our teams have to flex the business with precision is a huge strength for us and something really unique to ODDITY. Given the very strong start to the year, we expect Q1 net sales growth between 23% and 25%.

I still don’t understand the whole business about holding back growth and seemingly turning the spigot of the business on and off. And if anyone understands the strategy, I’m all ears. But the difference, according to the above was them deliberately slowing the business in the last two quarters of 2023.

JR

[PuddinHead42]

@ JabbokRiver42, great breakdown on the technology. I want to emphasize one important item and this is that they are Direct-to-consumer. This is a big discriminator and all else being equal, will give them bigger margins.

I am becoming an old man and have to try hard to see the lure of the phone that our “silly youngsters” have. They do everything on it, order dinner, order a ride, gamble, watch TV, buy everything on Amazon, text their friend on the other side of the dinner table. What I am saying is, no one should underestimate the TAM of young phone users for a product like this. The youngsters love low-priced ELF, but they are not the real competitor. ELF and ODD will be stealing the pieces of pie from the old-school cosmetics: Loreal, Este Lauder, etc. Can you image an iPhone induced social introvert going to the cosmetics counter at Nordstroms when they can do it from the backseat of their Uber? That is the future that can make this company grow fast and get big.

[mizzmonika]

JabbokRiver42, I looked at the Voyage 81 website and it indeed provides more information - sort of.

It says they have an algorithm that produces for smartphones the same results as a hyperspectral camera (probably what I referred to as what I have seen in the dermatology office).

But again, information is SO limited. Here is all they say about the product:

Analyze skin and hair features, detect facial blood flows, and create melanin and hemoglobin maps from a simple smartphone photo.

But NO EXAMPLES except pinching someone’s skin in a video so you can see the blood flow (hey, I can sort of do that with my naked eye). And to talk about hemoglobin and melanin identification which, again, you can pretty much do with the naked eye.

If they were so awesome around cosmetics, wouldn’t they provide a CONCRETE example? For example: our technology will identify 21 levels of dryness in your skin to choose the right moisturizer for you? Our technology will accurately read your skin tone and produce an exact match within x% 99% of the time. (by the way, according to reddit users, we know that’s not happening.)

I don’t doubt the technology but without concrete examples I just can’t buy that it does anything special beyond what it says - does what a hyperspectral camera does. But when I google what does a hyperspectral camera do I get the ability to analyze powders and things in the pharmaceutical industry but this is what I find for cosmetics:

Hyperspectral imaging can determine skin tissue levels of chromophores, such as melanin and hemoglobin, which can help differentiate pigmented skin lesions from melanomas. Hyperspectral imaging can also be used to optimize permanent makeup laser removal.

So how is this making better makeup for me?

Maybe they will but they haven’t specifically said that they do with data to back it up. Or at least I can’t find it.

Finally, all this obfuscation around exactly what they do and even in the earnings comments just posted adds to my worry: we deliberately slowed the business down in the back half of 2023 in order to pace our growth while our teams focused on huge preparations for 2024

Seriously? What does this mean? Mostly companies say that when they are trying to dial back S&M spend to generate a better profit. But instead these people are focusing on huge preparations for 2024. What preparations? Why the mystery?

And: The muscle and control our teams have to flex the business with precision is a huge strength for us and something really unique to ODDITY.

I’m sorry, my b.s. meter has never been wiggling so strongly.

Buy hey, I’m happy to be proven wrong. Maybe they are just horrible communicators and when they get better, I will be sold.

For now, It seems like massive hype to sell products that aren’t really that good according to reviews. But for sure people will go for it because hey, it sounds amazing.

[brittlerock]

My first read on this was - Hmm, seems interesting, certainly not 8.5% of my portfolio interesting, but worth looking into. Given just what I’ve read here, I’ll just sit back and watch. If I miss “the bottom” and get in late - so be it. I’m pretty sure I’ve missed the bottom of every investment I’ve ever made.

I just deleted a paragraph I copied from my broker, Fidelity. It was related to the slow down in EVs. I mistakenly posted it here.

Separately, compare this to the write up just about ELF posted by WPR, ELF @ Consumer Analyst Group Conference. IMO, the ELF information seems far more concrete. No AI or bioscience mumbo-jumbo, just very solid marketing information.

[intjudo]

FWIW

Evercore initiates Oddity Tech with an Outperform rating and $57 PT (NASDAQ:ODD)

[intjudo]

Thanks @JabbokRiver42 for introducing $ODD

I looked into them; here are my thoughts for what they are worth:

• In several instances they seen to be claiming that they created Il Makiage when in fact as @JabbokRiver42 said in the OP, they actually bought Il Makiage. One of their core claims seems to be that they can whip up new beauty/wellness brands at will; an in support of this they seem to be implying that they created Il Makiage. Not sure how I feel about that. I think it’s true that they revitalized the brand and took its marketing online and moved it to a profitable DTC model. But they didn’t create Il Makiage; this imo is an inconvenient fact in that it doesn’t support their narrative that they can whip up new successful brands at will.

• They claim that Spoiled Child is a smashing success, and indeed it’s producing revenue. However online reviews of one of their core products (foundation) aren’t really that great overall; if you combine the percentage of 1,2 and 3 star reviews it’s hardly a home run. A high percentage of the negative reviews say their online “SpoiledBrain” functionality chose the wrong color.

• They claim they have a massive AI advantage backed by a massive “data lake” and they claim they have AI apps that can analysze your skin’s characteristics (blood flow, vein color, spots and blemishes etc.) from a picture you send them and/or via a cell phone app. However to me it looks like the only “AI” capability that is actually deployed at the moment are quizzes (…on both their Il Makiage and Spoiled Child sites) that step you through a series of questions that progressively narrow down the information they need about your skin. I’ve taken the quizzes; they seem reasonable (…they flow much like an eye exam with an Optometrist: is 1) or 2) better?). But I’m not sure how much of an “AI” advantage $ODD truly has at this moment.

• They claim a core competitive advantage of taking a Pharma approach to formulating molecules that go into their products. However AFAICT this Pharma capability was purchased AFTER the Spoiled Child brand went out. I can’t find any information about the process they used to create Spoiled Child. So again, this makes me uneasy because they seem to be making claims about their capabilities that are not yet proven. They have yet to release any product created via their purported Pharma approach.

To sum up:

• They bought Il Makiage yet seem to at least imply that they created it from the ground up
• We don’t know how they created their Spoiled Child products, but it wasn’t via the Pharma approach they claim they have
• They claim AI capabilities, but the only evidence of that are quizzes that (…acccording to online reviews) aren’t as effective as you’d expect an advanced AI capability to be.
• They claim “spectral analalysis” capabilites that use patented tech to analyze photos of skin in multiple (non-visible) wavelengths, but it looks to me like such capabilities are not yet available to their customers.

So they seen to be asking us as Investors to count chickens that are not yet hatched.

Also I’m uneasy about their remarks that they deliberately throttled growth. Not sure that’s adequately explained. Maybe they want to go back and improve their Spoiled Child products so that the reviews are better before they accelerate their marketing?

I have to admit their growth and numbers look good, but their going-FORWARD narrative seems to depend entirely on claims they’ve made but have not yet substantiated. So I’m on the sidelines for now.

[intjudo]

Oddity Launches SpoiledChild Brand

"Oran Holtzman, co-founder and CEO of Oddity, said, “SpoiledChild is our second homegrown independent brand and has been developed leveraging the existing strengths of our scalable, rapidly-advancing technology platform, including our AI and machine learning capabilities and our online-only approach. We have shown our ability to grow a brand from $0 to over $250 million in online revenues in only 3 years via proprietary technology with Il Makiage, which has disrupted the beauty category. "

That is just plain patently NOT TRUE.

[JabbokRiver42]

To start, Oddity Tech ($ODD) reported last week. Here’s the topline from SA:

• Oddity Tech (NASDAQ:ODD) is up 16% after boosting its 2024 revenue and EPS outlook as well as posting Q1 results that beat on both lines.
• The tech-focused beauty and wellness company now sees full-year adjusted diluted EPS of $1.57-$1.62, up from $1.49-$1.54 prior. Consensus is $1.51.
• Revenue is now projected at $626M-$635M, up from $620-$630M before. Consensus is $626.44M.
• In the quarter, adjusted net income soared ~82% year over year to ~$38.4M. Adjusted diluted earnings per share grew to $0.61 from $0.37.
• At the end of the quarter (March 31), the company reported $77.5M in cash and cash equivalents, a 112% increase from Dec. 31, 2023.
• Oddity Tech noted that development is continuing on brands 3 and 4, its yet unnamed new product lines. The company’s current lines are Il Makiage and SpoiledChild.

To your specific question:

I agree that the 2022 clip you posted is misleading. But I can also understand why Holtzman is claiming Il Makiage is Oddity’s first “homegrown independent brand.”

A bit of the history is in this article from Oddity’s summer 2023 IPO:

Oddity's rise makes CEO Oran Holtzman a dollar billionaire

Key to that is this paragraph from the above:

Il Makiage started out as a chain of stores and a makeup school, but in 2013 it accumulated debts of tens of millions of shekels to employees, suppliers, and banks. Oran Holtzman, an accountant who was looking for interesting investments, paid NIS 12 million for the company, a purchase he financed with loans. He and his sister Shiran Holtzman-Erel, who is chief product officer, built a strategic plan for the company, turning it into a technology company, as it describes itself today.

Started by famed makeup artist Ilana Harkavi in 1972, Il Makiage was initially a brand for (and perhaps only available to) professional makeup artists. When Holtzman and his sister bought it in 2013, they envisioned a public brand that could be enhanced by the use of technology.

It took them until 2018 to figure that out, at which point it became the first brand under their new parent company, Oddity Tech. That’s when they really launched the brand to the general public, which then grew to their IPO last summer.

So, yes, it’s technically incorrect that they founded the brand, but I can also see why the new life they gave it and the broad access that their reinvention provided to general markets would lead them to claim what they launched as something they started.

Spoiled Child was launched before they acquired Revela Labs in Boston (their most recent acquisition). On earnings calls, they have described the plans to begin integrating that technology (the molecule discovery) into their existing brands and then using it to build out what they are now just calling Brands 3 & 4 on their roadmap.

They reported Q1 last week. Here’s the transcript of the call. This question was posed by a Truist analyst about the impact of Oddity Labs (formerly Revela):
Youssef Squali

Hi. Thank you. Good morning. Two questions here, please. Lindsay, can you please talk about return rates in the quarter and kind of what – how do you see those kind of progressing in Q2? And then, Oran, maybe going back to the ODDITY LABS topic, so just trying to get a sense of when do we get – when do we start seeing new products coming out of that? Should we be thinking that Brand number 3 will be kind of the official kind of launch of the new pipeline coming out of ODDITY LABS? Or have you already started, you know, kind of infusing existing products within the two brands with some of the ODDITY LABS innovation so far? And if so, is it in skin, is it in color, is it anything?

CFO Lindsay Drucker Mann took the first part:

Lindsay Drucker Mann

So I’ll start the repeat rate. So we don’t disclose repeat rate specifically by quarter. We were really pleased with the return rate. We were very pleased with the return rate that we saw in Q1. As you know, last year, in fiscal '23, return rates were lower on a year-over-year basis, and would actually expect them to be a touch lower again this year. However, we have no, in our model, we don’t project return rate to continue to decline as a percentage of gross revenue, mostly because we think that’s a really important investment that we have, acquisition investment we have, a way to push new products and expand into new categories, where you’ll just naturally have some threshold level of return rate. But for us, we’re managing towards a contribution margin, which is most important. I will say and I talked about, in the prepared remarks, how we’re incorporating vision more into our matching engines. And we actually are seeing on a like-for-like basis with vision improvement in return rates for the same products. And there’s – we’re still very early days here, but, for example, for the first time, we can use multimodal data sets for our machine models that includes vision reviews, data around purchase rates, et cetera. And putting all those things together, we can lead to an improved training set, which is now driving better models. We can also use vision during the matching process itself for the first time. Again, it’s still very early days, but these things are allowing us to improve on our return rates.

After that, Holtzman added this:

I will touch one thing regarding the return rate. Look, I never view it as improvement because don’t forget how we work. When I want to launch a new product or a new category, I start to train the machine learning. In order to train the machine learning, I need to say, like, I need to be wrong. I need to send the wrong product to the wrong person, and then – and that’s the way that we train the machine. So if I decide to invest now in building more machine learning for new products, it means that I will have higher return rate. But, like, that’s – like, we are prepared for it, and this is not an outcome, that’s like, it was our decision. So that’s why like – just pay attention to the return rate doesn’t represent anything about the business. As for ODDITY LABS, for sure, you will see it in Brand 3. We will start to do things even before that. When we need, just to be clear, if we wanted or needed products out there in the market, they would have been ready. We won in some projects and even we two already. But we are already pacing the growth without it. So I didn’t – I need – I didn’t need to do it. I don’t – for new products, I don’t need 50 or 100 PhDs in Boston, and I don’t need to spend my time there and also their time. We build LABS to build something that never exists before. We build LABS to take the business 5x or 10x. And therefore, another year or another quarter, if I don’t need it, like, I’m not putting pressure, I do put a lot of pressure around, and way higher efficacy in terms of products and very high safety protocols. So if we need before we will launch it, probably we’ll start launching products to see the reaction, but a meaningful wave should come with Brand 3.

Here’s another exchange that kind of explains the thinking behind launch decisions:

Lauren Lieberman

Okay, great. And then second thing was just on the decision and timing on new launch activity. And Oran, very consistent, what you said this quarter is what you said last about timeline for launching products from LABS. But one of my questions was if some of these products have such demonstrable efficacy and improved quality versus anything in the market, let alone versus what you’ve already got in the market, why wouldn’t you be looking to launch, to raise the profile? Like Lindsay said, you’re tiny, but raise the profile, raise the word of mouth that exists around some of your products. If you’ve got things that work better than anything else, why wouldn’t you want those in the market sooner rather than later?

Oran Holtzman

Because I want to be sure 100% that it’s way better than others. That’s my honest answer. I want to make sure that we have a system that is very strong, we build protocols, we make sure that, again, we are doing it for the first time. I don’t want to go to market when I don’t need it with something that is better but slightly better. I want to go with products that are way better and it takes time.

Lauren Lieberman

Okay. I appreciate that. Thank you so much, guys.

There’s much more to say, and I encourage everyone to read the Q1 transcript. There’s a lot there about their overall approach to things. But my house is currently filled with workers using power tools and a panicked cat, so my concentration for such things is limited at the moment!

I mainly wanted to respond to the charge of dishonesty about their product development because I think it’s nuanced rather than an attempt to deceive.

JabbokRiver