Executive Summary / Key Takeaways

• ODDITY Tech is a digital-first innovator leveraging a proprietary AI-driven platform to disrupt the traditional beauty and wellness industries, demonstrating superior growth and profitability compared to conventional competitors.
• The company's core technological differentiators, including PowerMatch and advanced computer vision, deliver quantifiable benefits like reduced product returns, improved upsell conversion, and highly accurate diagnostic capabilities for its upcoming telehealth platform.
• ODDITY is expanding aggressively into new, high-potential markets with Brand 3 (METHODIQ), a medical-grade telehealth platform for dermatology launching in Q4 2025, and Brand 4 in 2026, alongside significant international growth.
• Despite substantial investments in new brands and ODDITY Labs, the company maintains robust financial health, consistently exceeding its long-term algorithm of 20% revenue growth and 20% adjusted EBITDA margin, fueled by strong repeat sales and free cash flow generation.
• While trading at a premium valuation, ODDITY's strategic focus on technology, product efficacy, and a direct-to-consumer model positions it for sustained long-term compounding growth in a resilient global market.

The Digital Transformation of Beauty and Wellness

ODDITY Tech Ltd. ($ODD) stands at the forefront of a profound transformation within the beauty and wellness industries, challenging established norms with its digital-first, AI-powered approach. Founded in Tel Aviv in 2013, ODDITY launched its flagship beauty brand, IL MAKIAGE, in the U.S. in 2018, pioneering a direct-to-consumer (DTC) model that prioritized technology and data-driven personalization. This foundational strategy has enabled ODDITY to become an outlier in a $600 billion global market, consistently delivering strong and profitable growth while many traditional competitors grapple with slowing sales, weaker foot traffic, and excess inventory.

The company's overarching strategy is to identify consumer needs through data science, machine learning, and computer vision, then develop and scale solutions in the form of high-efficacy beauty, wellness, and technology products. This approach is particularly potent given two major industry trends: a massive consumer shift to online channels, which ODDITY anticipates will become the largest channel at 50% of the market, and an increasing demand for high-performance, science-backed products. ODDITY's historical journey, marked by the successful launch of IL MAKIAGE Skin and SpoiledChild in 2022, the establishment of ODDITY Labs, and strategic acquisitions like Fionix IP and Revela, has consistently reinforced its technological moat and prepared it for aggressive expansion.

Technological Moat: Precision, Personalization, and Performance

ODDITY's competitive advantage is deeply rooted in its proprietary technology platform, which serves as the most advanced AI-based commercial engine in the industry. This platform leverages data science, machine learning, and computer vision to deliver hyper-personalized product recommendations and optimize the user experience across all its brands.

The tangible benefits of this technology are quantifiable and directly impact financial performance. For instance, the latest version of IL MAKIAGE Power Match, a multimodal AI architecture trained on both images and text, has successfully reduced returns of best-selling shades by over 10%. Similarly, a new machine learning model for SpoiledChild focused on post-purchase upsells has driven a more than 30% improvement in upsell conversion and a more than 15% improvement in upsell Average Order Value (AOV). These efficiencies translate directly into higher revenue, better margins, and enhanced customer satisfaction.

A significant area of innovation is ODDITY Labs, a biotechnology center in Boston with over 60 scientists. Its mission is to bring "real science at high scale" to the industry through AI-based molecular discovery, developing new molecules, ingredients, and delivery systems. ODDITY Labs is actively developing proprietary molecules for Brands 3 and 4 for near-term rollout, alongside longer-term developments in next-generation molecule delivery systems, new modalities, and biological pathways. While ODDITY Labs is not expected to materially contribute to revenue in the short term, management views it as a "complete game changer" that can "take the company to a different level and almost unlimited size," providing a long-term competitive moat through superior product efficacy.

For the upcoming Brand 3, a telehealth platform named METHODIQ, ODDITY is taking personalization and computer vision to an unprecedented level. Its acne grading algorithms, trained with dermatologists' input, achieve a 94% agreement with expert dermatologists' tagging in internal validation studies. The acne lesion localization and classification models identify, map, measure, and classify lesions with a 93% recall rate. Furthermore, a hyperpigmentation detection model segments and classifies discoloration with 84% matching accuracy. The platform also features a predictive view algorithm, powered by generative AI, to visualize expected skin improvements over the treatment journey, crucial for compliance and user trust. This deep technological integration, supported by a proprietary dataset of over 10 million unique user images, allows ODDITY to build domain-specific AI experts faster and with higher quality, significantly differentiating its offerings in the medical-grade space.

Financial Strength and Strategic Expansion

ODDITY's financial performance underscores the effectiveness of its technology-driven model. For the first half of 2025, the company grew revenue 26% to $509 million, generating adjusted EBITDA of $122 million and free cash flow of $99 million. This represents more adjusted EBITDA and free cash flow than the company delivered for the entire full year of 2023, the year of its IPO. In Q2 2025 alone, ODDITY reported net revenue of $241 million, a 25% increase year-over-year, and adjusted EBITDA of $70 million, exceeding its guidance on all metrics. Gross margin expanded to 72.3% in Q2 2025, reflecting efficient operations and favorable product mix.

The company's strong cash generation is a hallmark of its business model. ODDITY generated $119 million of free cash flow year-to-date in Q3 2024, converting close to 90% of its EBITDA to cash. It exited Q2 2025 with a robust balance sheet, holding $815 million in cash, cash equivalents, and investments, supplemented by an additional $200 million available on undrawn credit facilities, and minimal debt. This ample liquidity supports ODDITY's capital allocation priorities: reinvesting in the business, opportunistic M&A, and share buybacks. The recent $600 million exchangeable note offering, with a 0% coupon and a cap call limiting dilution, further bolstered its cash position for future strategic initiatives.

ODDITY's growth is not confined to its existing brands. IL MAKIAGE, which crossed $500 million in revenue in 2024, is on track to reach $1 billion by 2028. IL MAKIAGE Skin is a significant growth driver, expected to approach 40% of the brand's revenue in 2025, up from 30% in 2024, benefiting from higher AOV and gross margins. SpoiledChild, launched in 2022, is also performing exceptionally well, on track to cross $200 million in revenue in 2025, demonstrating strong repeat rates and AOV.

International expansion is another critical growth pillar. While international sales represented 15% of ODDITY's business in 2024, they grew over 40% in the first half of 2025, reaching approximately $85 million. This contrasts sharply with competitors who often generate around 70% of their revenue internationally, highlighting a substantial untapped opportunity for ODDITY. The company is already a top online beauty brand in markets like the U.K. and Australia and is seeing strong results from tests in new markets such as France.

Competitive Edge in a Shifting Landscape

ODDITY's direct-to-consumer model provides a distinct competitive advantage over traditional beauty companies. The company maintains a direct dialogue with consumers, offering unparalleled insights into product performance and demand. This agility allows ODDITY to optimize its offerings continuously and avoid the excess inventory and discounting issues faced by wholesale brands. Its ability to attract top technology talent, particularly from the Israeli tech ecosystem, further strengthens its competitive moat.

In the U.S. prestige market, IL MAKIAGE is a formidable player, recognized as the number one foundation, number one primer, and number two concealer in dollar sales. This market leadership, achieved in just six years, underscores the effectiveness of ODDITY's product development and digital marketing capabilities.

The upcoming Brand 3 (METHODIQ) positions ODDITY to disrupt the dermatology market, which is characterized by significant consumer dissatisfaction. Traditional drugstores offer generalized, low-efficacy products, while dermatologists present a high-friction, expensive experience, with limited access in many U.S. counties. ODDITY's personalized, online telehealth platform, offering both OTC and prescription products, directly addresses these pain points. Its customized treatment recommendations, which have shown a 50% improvement in satisfied testers compared to standard treatments like tretinoin, represent a significant leap in efficacy and convenience.

While competitors like Estée Lauder (EL), Ulta Beauty (ULTA), Procter & Gamble (PG), and e.l.f. Beauty (ELF) operate in the broader beauty and wellness space, ODDITY's digital-first, AI-driven personalization sets it apart. EL, with its luxury branding and omnichannel approach, offers broad market accessibility but may lack ODDITY's agility in digital innovation. ULTA's multi-brand retail model provides extensive choice but cannot match ODDITY's deep, tech-enabled product matching. PG, a mass-market giant, offers scale and brand recognition but is slower to adapt to niche, tech-driven trends. ELF, focused on affordability, has rapid growth but lacks ODDITY's premium personalization and scientific depth. ODDITY's technological differentiation allows it to capture market share by offering a superior, tailored experience that traditional models struggle to replicate.

Outlook and Risks

ODDITY's outlook remains exceptionally strong. The company raised its full-year 2025 guidance, now expecting net revenue between $799 million and $804 million, representing 23% to 24% year-over-year growth. Adjusted EBITDA is projected to be between $160 million and $162 million, with adjusted diluted EPS between $2.06 and $2.09. This guidance surpasses ODDITY's long-term algorithm of 20% revenue growth and 20% adjusted EBITDA margin, a testament to its consistent outperformance.

Crucially, this robust outlook does not factor in any material revenue contribution from Brand 3 or Brand 4 in 2025 or 2026, as existing brands are expected to drive significant growth. Management explicitly states its commitment to reinvesting any EBITDA upside back into the business, viewing these investments in new brands, ODDITY Labs, and technology as "massive unlocks" for future growth. For 2026, ODDITY anticipates financial performance in line with its long-term algorithm, with planned front-loaded investments in the first half of the year, particularly Q1, which will be offset by lower spending in the second half to maintain full-year margin targets.

Despite the compelling growth story, investors should consider certain risks. ODDITY's stock trades at a premium valuation, reflecting its superior margins and rapid growth, but this also implies higher expectations for execution. The successful launch and scaling of new brands like Brand 3 and Brand 4, along with the long-term impact of ODDITY Labs, require flawless execution. Competitive pressures, particularly from established players adapting their digital strategies, remain a factor. However, ODDITY has demonstrated resilience against external headwinds, such as potential TikTok restrictions (which it deems immaterial due to its agile internal operations) and tariffs (expected to be a manageable headwind of less than 100 basis points to gross margin, given its high starting margins and limited exposure to China). The company's proactive approach to regulatory changes like the click-to-cancel rule also mitigates potential impacts.

Conclusion

ODDITY Tech Ltd. presents a compelling investment thesis centered on its unique position as an AI-powered disruptor in the beauty and wellness sectors. By consistently leveraging its proprietary technology for hyper-personalization, expanding into high-growth categories like medical-grade dermatology, and strategically reinvesting its substantial free cash flow, ODDITY is building a durable competitive moat. The company's proven ability to deliver strong, profitable growth, coupled with a clear roadmap for future expansion and innovation through ODDITY Labs and new brand launches, positions it for sustained long-term value creation. While its premium valuation reflects high expectations, ODDITY's differentiated model and relentless focus on technology and product efficacy suggest it is well-equipped to continue its trajectory as a leader in the evolving digital beauty and wellness landscape.