Oddity Tech Ltd. (ODD)

Executive Summary / Key Takeaways

• AI-Powered Brand Creation Engine: Oddity has evolved from a single beauty brand into a technology platform that leverages proprietary computer vision and AI to launch highly-scaled direct-to-consumer brands with 72%+ gross margins—economics that traditional beauty companies cannot replicate through retail channels.

• METHODIQ Marks a $50 Billion Market Expansion: The November 2025 launch of its telehealth dermatology platform represents ODDITY's entry into healthcare, targeting the 50 million Americans suffering from acne and 30 million with eczema. This is not merely a brand extension but a structural expansion of addressable market into medical services where friction and cost create massive white space.

• Consistent Execution Despite Consumer Headwinds: Having exceeded financial targets for ten consecutive quarters since its 2023 IPO, ODDITY's 24% revenue growth and expanding margins in Q3 2025 demonstrate a resilient model where repeat purchase rates exceeding 100% and a 40% international growth rate offset macro softness and higher customer acquisition costs.

• Laboratory-Grade Differentiation: ODDITY LABS, with over 60 scientists in Boston developing proprietary molecules, will launch at least eight products in 2026 including four for METHODIQ. This creates a true product moat beyond marketing, addressing the industry-wide efficacy gap that commoditizes most beauty brands.

• Valuation Reflects Platform Premium, Not Single-Brand Multiple: Trading at 23 times earnings and 2.24 times revenue, ODDITY's metrics align with mid-tier beauty peers while delivering superior growth and margins that justify a premium for its tech-enabled, multi-brand scalability and healthcare optionality.

Setting the Scene: When Beauty Becomes a Data Business

Oddity Tech Ltd., incorporated in 2013 and headquartered in Tel Aviv, is not a beauty company that uses technology. It is a consumer technology company that happens to sell beauty and wellness products. This distinction defines its entire investment case. While traditional beauty conglomerates like Coty (COTY) and Estée Lauder (EL) built moats through retail distribution and celebrity endorsements, Oddity constructs its competitive advantage from ten million unique facial images, machine learning models that match dermatologist accuracy, and an online-only direct-to-consumer engine that eliminates retail markups while capturing radically superior margins.

The beauty industry generates over $500 billion in annual sales, yet remains structurally inefficient. Physical retail requires slotting fees, inventory risk, and limited personalization. Approximately half of U.S. counties lack a practicing dermatologist, and average wait times exceed one month at $300 per visit before treatment. Oddity's model exploits these inefficiencies by delivering high-efficacy products matched precisely to individual needs through its PowerMatch AI, reducing returns of best-selling shades by over 10% while maintaining gross margins above 71%. This is not incremental improvement; it is a re-architecture of how consumers discover and purchase beauty products.

The company launched its first brand, IL MAKIAGE, in the U.S. in 2018. By 2024, the brand crossed $500 million in revenue, growing double-digits annually. Its second brand, SpoiledChild, launched in 2022 and is on track to exceed $225 million in 2025, representing nearly 25% of company revenue. Now, with the Q3 soft launch and November formal launch of METHODIQ—a telehealth platform for dermatology—Oddity enters the third phase of its evolution: from beauty to wellness to medical-grade healthcare. This progression is significant because each phase builds on the same AI infrastructure while expanding the addressable market by orders of magnitude.

Technology as the True Product

Oddity's technology platform is not a support function; it is the business. The company's AI-based commercial engine, built on more than ten million unique user images—what management believes is one of the world's largest such datasets—enables capabilities that competitors cannot replicate. Its acne grading models match or exceed single dermatologist accuracy. Its new post-purchase upsell model for SpoiledChild, powered by machine learning rather than human curation, drove a 30% improvement in upsell conversion and 15% higher average order values. These are not vanity metrics; they translate directly into margin expansion and customer lifetime value that fund continuous reinvestment.

This data moat creates a flywheel effect for investors. Every customer interaction improves the models, which improves conversion and reduces returns, which generates more cash to acquire more customers and collect more data. Traditional beauty companies cannot access this feedback loop—they sell through retailers who own the customer relationship. When Oddity acquired Fionix IP in 2025, bringing in an elite AI research team with Israeli intelligence unit experience, it was not merely expanding headcount. It was reinforcing a technological lead that already shows demonstrable ROI in reduced returns and higher conversion.

The platform's modular design makes it extensible across brands. The same computer vision that powers shade matching for IL MAKIAGE now assesses skin conditions for METHODIQ. The same recommendation engine that personalizes makeup routines now generates over 100 unique treatment combinations for dermatology patients. This reusability means the marginal cost of launching new brands declines while the probability of success increases. SpoiledChild reached $150 million in under three years; management expects METHODIQ to scale even faster. This implies that Oddity has built a brand factory where the tooling, data, and infrastructure costs are largely fixed, making each incremental brand more profitable than the last.

Segment Dynamics: Three Brands, One Platform

IL MAKIAGE: The Proven Core

IL MAKIAGE crossed $500 million in revenue in 2024 and remains on track to reach $1 billion by 2028. The brand grew double-digits online in each quarter of 2025, with skin products rising from 30% to nearly 40% of revenue. This mix shift matters enormously. Skincare commands higher average order values and replenishment rates than color cosmetics, directly boosting lifetime value. Management notes that IL MAKIAGE is now the number one foundation and primer, and number two concealer, in U.S. prestige dollar sales—an achievement made without a single physical retail location.

International expansion represents the brand's primary growth vector. While competitors generate closer to 70% of revenue internationally, Oddity's exposure is just 15%. In the U.K. and Australia, IL MAKIAGE is already the number one or two online beauty brand. The company accelerated testing in France, Italy, and Spain in 2025, driving a 40% year-over-year increase in international revenue for the first nine months. This demonstrates the model's geographic portability without the regulatory friction and retail partnerships that slow traditional beauty companies. The $1 billion revenue target by 2028 assumes continued international scaling, making this a critical execution variable.

SpoiledChild: Validation of Multi-Brand Capability

SpoiledChild's trajectory from zero to $150 million in under three years validates Oddity's ability to replicate its playbook. The brand is now expected to cross $225 million in 2025, growing double-digits online each quarter. Management describes it as "building to be a billion-dollar brand" with strong repeat rates and AOVs. This is significant as it proves IL MAKIAGE was not a fluke; the platform can birth multiple category winners. The hair, body, and wellness category also diversifies Oddity beyond face makeup, reducing seasonal volatility and expanding wallet share.

International testing for SpoiledChild began in 2025 with "good indications" and "big potential." If the brand can replicate IL MAKIAGE's international success, it could double its addressable market. More importantly, SpoiledChild's success gives management confidence to accelerate investment in METHODIQ and Brand 4, knowing the underlying platform can support parallel scaling. The risk is that resources become stretched across too many launches, but the company's $793 million cash position and disciplined 20% growth algorithm mitigate this concern.

METHODIQ: The Healthcare Inflection

METHODIQ is Oddity's most ambitious endeavor, representing four years of R&D, two acquisitions (Voyage81 and Revela), and over 20,000 user trials. Launching a telehealth platform with 28 prescription and non-prescription products moves the company beyond cosmetics into medical-grade dermatology. This is significant because the market is massive and broken. Nearly 50 million Americans suffer from acne, 30 million from hyperpigmentation, and 30 million from eczema. Over two-thirds of U.S. counties lack a dermatologist, and visits cost $300 before treatment. Drugstore products lack efficacy; physician visits involve high friction and declining standards of care.

METHODIQ's platform combines specialized video assessment technology with a mobile app for treatment coaching and compliance tracking. The vision tools were trained on over one million curated facial images from Oddity's database. This extends the company's AI advantage into a new domain, creating a proprietary dataset of medical-grade skin conditions that competitors cannot easily replicate. The prescription model introduces lower gross margins initially due to third-party physician networks and compounding pharmacy costs, but management expects the business to be mostly non-prescription over time.

The launch campaign—Oddity's largest-ever TikTok activation and a New York City out-of-home takeover—signals confidence. Management's expectation that METHODIQ will scale faster than SpoiledChild, one of history's best D2C launches, implies revenue could exceed $200 million within three years. While no material revenue is expected in 2025, the 2026 pipeline includes four METHODIQ products formulated with ODDITY LABS proprietary molecules. The risk is execution: telehealth is highly regulated, prescription reimbursement is complex, and medical customers have different expectations than beauty consumers. However, the platform's modularity means Oddity can leverage its existing AI, data, and DTC infrastructure, reducing execution risk relative to a standalone startup.

ODDITY LABS: The Molecule Moat

ODDITY LABS represents a major investment for the company, with tens of millions in annual spending and over 60 scientists in Boston. The lab's mission is to discover and develop new, high-efficacy molecules and delivery systems that exceed existing product performance. This is significant because most beauty products use commodity ingredients with marginal differentiation. Proprietary molecules create defensible intellectual property that cannot be copied, supporting premium pricing and genuine efficacy claims.

In 2024, the lab pivoted to extend development timelines in pursuit of molecules with significantly higher performance. This strategic patience is crucial for long-term differentiation but creates near-term R&D drag. The payoff begins in 2026, with at least eight products featuring LABS molecules hitting the market—four for METHODIQ and four for IL MAKIAGE and SpoiledChild. Management emphasizes that LABS is not needed to meet current financial targets, which implies the investment is purely upside optionality. If successful, it transforms Oddity from a marketing-led DTC company into a science-led product innovation engine, akin to how Apple (AAPL)'s silicon team differentiates its hardware.

The financial implications are asymmetric. Failure means tens of millions in sunk R&D costs, manageable given the company's $793 million cash position. Success means products that command 2-3x price points with superior margins, creating a new revenue stream and reinforcing the technology moat. The risk is timing: pharmaceutical-grade development cycles are long, and beauty consumers may not appreciate molecular differences without extensive education. However, Oddity's DTC model and AI-powered personalization provide direct channels to demonstrate efficacy to targeted cohorts, increasing the probability of successful commercialization.

Financial Performance: Evidence of Platform Economics

Oddity's Q3 2025 results tell a story of durable competitive advantage. Revenue grew 24% to $148 million, representing the tenth consecutive quarter of exceeding guidance since the 2023 IPO. Gross margins expanded 170 basis points to 71.6% despite tariff headwinds, driven by cost efficiencies and favorable product mix. Adjusted EBITDA of $29 million beat the guidance range of $26-28 million, while free cash flow reached $90 million for the first nine months. These metrics demonstrate that the company's AI-driven model delivers superior unit economics even while investing heavily in new brands and LABS.

Repeat sales increased as a percentage of total revenue year-over-year, with 12-month net revenue repeat cohorts remaining "north of 100%." This indicates that existing customers are spending more over time, not less. In a consumer environment where many competitors report weak demand and excess inventory, Oddity's repeat rate provides a natural hedge against rising customer acquisition costs. Oran Holtzman's commentary is explicit: "the main reason that we can offset it is just like the massive repeat that we have." This recurring revenue characteristic, even without subscription contracts, de-risks the growth algorithm and supports higher valuation multiples.

International revenue growth of 40% year-over-year is particularly significant. At just 15% of total revenue, Oddity has tremendous white space compared to competitors who derive closer to 70% internationally. The company's agile DTC model allows it to test markets like France, Italy, and Spain without committing to expensive retail partnerships, reducing entry costs and increasing ROI. This geographic diversification is important for risk/reward, as it provides a multi-year growth runway that is independent of U.S. consumer sentiment.

Capital Allocation: Patiently Aggressive

Oddity ended Q3 2025 with $793 million in cash and investments plus $200 million in undrawn credit facilities, against minimal debt. In Q2, the company issued a $600 million convertible note, generating $510.6 million in net proceeds and purchasing a cap call to limit dilution until the stock price approximately doubles. The decision to issue debt, even when cash-rich, provides dry powder for opportunistic M&A and brand launches while preserving flexibility. The convertible structure, with its limited dilution features, signals management's confidence in share price appreciation.

The company's capital allocation strategy is described as "patient and opportunistic," prioritizing reinvestment in the business, M&A, and opportunistic buybacks. With $103 million remaining on the buyback authorization but no repurchases year-to-date, management is clearly favoring growth investments over returning capital. This indicates that the pipeline of opportunities—both internal (LABS, Brand 4) and external (acquisitions like Fionix IP)—is robust enough to generate higher returns than share repurchases. For investors, this suggests the growth story is still in its early innings.

The major media campaign for METHODIQ, described as Oddity's biggest in history, will pressure marketing spend in Q4 2025 and Q1 2026. However, management's guidance of 20% EBITDA margins in 2026 despite these investments implies they can fund growth while maintaining profitability. This discipline highlights that capital allocation is governed by unit economics, not growth at any cost.

Competitive Context: Outperforming in a Weak Market

Oddity's competitive advantages become stark when compared to peers. While Coty's consumer beauty segment declined mid-single digits in 2025 and Edgewell Personal Care (EPC)'s net sales fell 1.3%, Oddity grew 24%. Gross margins of 73% compare favorably to e.l.f. Beauty (ELF)'s 70%, Coty's 65%, and Edgewell's 42%. The operating margin of 11.7% may trail Interparfums (IPAR)'s 25%, but Oddity is growing revenue 20x faster. This performance gap demonstrates that the DTC, AI-driven model is not a niche strategy but a structurally superior approach winning share in real-time.

IL MAKIAGE's position as the number one foundation and primer in U.S. prestige dollar sales—achieved purely online—exploits a key incumbent weakness. Traditional brands rely on department store counters for sampling and shade matching, a high-friction process with high return rates. Oddity's PowerMatch technology reduces returns by over 10% while eliminating retail overhead. This cost advantage allows Oddity to spend more on performance marketing and product development while maintaining superior margins, creating a self-reinforcing cycle that traditional competitors cannot easily replicate.

The company's limited TikTok exposure, with management stating a ban would have "not material" impact, highlights another advantage: platform agility. While e.l.f. Beauty built its growth on viral social media dependence, Oddity's diversified acquisition strategy across multiple digital channels reduces platform risk. This is important for long-term stability and justifies a more durable earnings multiple.

Risks That Could Break the Thesis

METHODIQ Execution Risk: Telehealth involves complex regulatory compliance, third-party physician network management, and prescription fulfillment. Initial gross margins will be pressured by these costs. If conversion rates lag or customer acquisition costs exceed beauty benchmarks, the brand may scale slower than expected, delaying the healthcare revenue narrative. The risk is compounded by management's history of beating guidance; any stumble on METHODIQ could break investor confidence in the platform's extensibility.

ODDITY LABS R&D Payback: Investing tens of millions in molecular discovery is a long-cycle bet. If the eight proprietary products launching in 2026 fail to demonstrate materially superior efficacy, the R&D spend becomes a permanent margin drag without competitive benefit. Success requires not only scientific breakthrough but also consumer education and brand building, a dual challenge that could stretch execution bandwidth.

Consumer Durability: While repeat rates remain strong, a severe consumer recession could pressure discretionary spending on premium beauty products. Oddity's DTC model, while efficient, lacks the impulse purchase channel of physical retail. If customer acquisition costs rise faster than management's ability to offset with repeat purchases, the 20% EBITDA margin target could prove optimistic.

Scale Disadvantage: At $809 million in projected 2025 revenue, Oddity is a fraction of L'Oréal (LRLCY)'s $40+ billion scale. This limits supplier leverage and bargaining power. While the company maintains a flexible supply chain with limited China exposure, inflationary pressure on commodity ingredients could compress gross margins more than the 50-100 bps from tariffs currently forecast.

Valuation Context: Platform Premium vs. Peer Discounts

At $41.29 per share, Oddity trades at 23 times trailing earnings and 24 times forward earnings. The EV/Revenue multiple of 2.24x sits below e.l.f. Beauty's 3.63x despite superior gross margins (73% vs 70%) and profitability (14% net margin vs 6%). Enterprise value of $1.75 billion is less than 1x the projected combined revenue of IL MAKIAGE and SpoiledChild alone by 2028 ($1.2+ billion), assigning minimal value to METHODIQ, ODDITY LABS, and the platform itself.

The market appears to price Oddity as a traditional beauty company rather than a technology platform. The P/FCF ratio of 45x may seem elevated, but it reflects heavy investment in future growth. With $793 million in net cash and a 29.7% ROE, Oddity's balance sheet provides downside protection while its platform economics justify multiple expansion as METHODIQ proves its scalability.

Comparing valuation to Coty (8.2x EV/EBITDA but declining revenue) and Edgewell (7.1x EV/EBITDA but 1% net margins) highlights the quality premium. Oddity trades at 13.3x EV/EBITDA while growing 24% and generating 14% net margins—a rare combination that suggests the stock is discounting management's execution rather than pricing in platform potential. If METHODIQ achieves even half of SpoiledChild's trajectory, the implied valuation for the core beauty business drops below 2x revenue, an attractive entry point for a high-quality compounder.

Conclusion: A Platform Entering Its Multi-Brand Prime

Oddity's investment thesis hinges on a simple but powerful idea: it has built an AI-driven platform that can identify consumer needs, develop superior products, and scale direct-to-consumer brands with unprecedented efficiency. The Q3 2025 results, marking ten straight quarters of guidance beats, prove the model works even in challenging consumer environments. IL MAKIAGE's path to $1 billion and SpoiledChild's validation of multi-brand replication provide the foundation.

The real asymmetry lies in METHODIQ and ODDITY LABS. If the company can successfully extend its AI platform into telehealth dermatology while launching proprietary molecules, it will transcend the beauty category entirely, entering healthcare and biotechnology with the same asset-light, high-margin model. The $600 million convertible note and $793 million cash position provide the firepower to invest through any macro softness while competitors retrench.

For investors, the critical variables are execution velocity on METHODIQ's early cohorts and commercial validation of LABS molecules in 2026. Success on both fronts would likely force a re-rating from beauty multiple to tech multiple, reflecting the platform's true earnings power. Failure would still leave a profitable, growing beauty business trading at reasonable valuations. This favorable risk/reward, combined with management's proven capital discipline and consistent outperformance, positions Oddity as a rare combination of quality, growth, and reasonable price in an otherwise expensive market.