$ODD Man Out... For Now

Last Wednesday, Oddity Tech, a beauty and wellness company, closed their first trading day at a ~$3B market valuation. The company, which operates two brands (Il Makiage and SpoiledChild) and has a third on the way, did $166M in net revenue and $20M in net income (with 71% gross margins) in Q1’23 – up from $90M in net revenue year over year.

Until its IPO, Oddity was relatively unknown among technocrats; though this is unsurprising for a consumer cosmetics company, their heavy focus on proprietary technology was perhaps underestimated. An in-house tech team – largely recruited from Israeli tech groups such as the IDF – comprises 40% of their global headcount. The company has collected 1B unique data points from 40M+ users (representing one of the largest databases in the industry), acquired biotech startup Revela (to pursue AI-based molecule discovery for problem areas like hair loss and anti aging), and built Kenzza, an owned platform with video content from beauty and wellness creators to help consumers discover and shop new products.

Oddity’s IPO is notable not only because it follows CAVA’s successful listing, suggesting the re-opening of a previously dead IPO market, but also because it may be a harbinger of the next wave of consumer businesses. For investors, this is an exciting signal in a category that has recently been characterized by the chronic underperformance of public comps (Allbirds, Warby Parker, etc). Oddity’s IPO also came after the recent SKIMS funding announcement (reportedly at a $4B valuation, up from $3.2B in their last round).

Oddity and SKIMS represent meaningful case studies in effective business design leading to growth and profitability. If the last era of consumer was defined by a uniform (and unsustainable) “arbitrage” achieved by going direct to consumer, the new era of consumer might be defined by differentiated business models that support superior unit economics. Oddity, for example, uses data, technology, and a creator focus to achieve superlative repeat rates, with each new cohort outperforming the prior (see below). SKIMS, on the other hand, leverages Kim’s notability/distribution and boasts an unmatched attention to product quality and demand.

Oddity, despite positioning itself as a tech-first company, is currently trading in line with high-growth cosmetic comps (see below). This is positive; it suggests that we might see more businesses enter the consumer ecosystem with differentiated, innovative properties – whether distribution, their GTM, product formulation, proprietary technology, or otherwise – that serve as their competitive advantage vs. yesterday’s DTC playbook. Additionally, in trading like other consumer businesses, Oddity correctly aligns the market and investors on growth and margin expectations over the long term.

We believe businesses like Oddity play an important role in inspiring entrepreneurs across the board. While its performance as a public company remains unproven, we hope it (and SKIMS, among others) pioneers a “new” model for those building in the consumer or media space – one that focuses on and builds a moat around drivers of growth and profitability.