NEW YORK, July 6 (Reuters Breakingviews) – Oddity Tech has a sparkly foundation for its upcoming initial public offering. The Israeli beauty company home to the Il Makiage and SpoiledChild brands is highlighting the artificial intelligence behind its makeup and machine learning algorithms that help consumers pick the right shades. These features should help put a dewy gloss on the valuation before the hype eventually fades.
Boss Oran Holtzman fancies Oddity a digital disruptor to the vast appearance-enhancing industry. His company sells concealers and eye shadows directly to shoppers online and touts that its technology teams account for 40% of headcount. In addition, it credits an expanding stockpile of customer data for rapid revenue growth, which increased 46% last year, to $325 million, and 84% in the first quarter of 2023 from a year earlier. AI also powers Revela, a biotechnology firm it bought in April that develops new molecules for cosmetics and skincare.
It’s an opportune time to capitalize on such aspects of Oddity’s business. Nearly all things AI have lifted stock prices. What’s more, Mediterranean restaurant chain Cava (CAVA.N) and thrift-store operator Savers Value Village (SVV.N) have cracked open the stagnant IPO market for consumer-focused companies.
During its last private fundraising round in January 2022, just after the Nasdaq Composite Index (.IXIC) peaked, Oddity was valued at $1.5 billion. The sum represented almost 7 times its 2021 revenue and more than 100 times its net income that year.
Incumbent rivals Coty (COTY.N) and Estee Lauder (EL.N) respectively trade at around 13 times and 21 times EBITDA for the next 12 months, according to Refinitiv data. They’re more mature companies, however, whose top lines are expected to increase by no more than 10%. The faster-growing elf Beauty (ELF.N), which sells comparatively inexpensive wares, fetches 37 times forward EBITDA. If Oddity were to grow that measure of earnings, adjusted for share-based compensation and other factors, by nearly 50%, as it did last year, it would be worth about $2.2 billion on elf’s multiple. The AI sheen might give it an additional glow.
The risk is that, unlike elf, Oddity only sells online just as makeup buyers are heading back to brick-and-mortar stores, according to research outfit 1010Data. Regardless of the trend, if Oddity’s technology shows staying power, its deep-pocketed rivals are likely to copy it. More likely is that once the AI buzz dies down, the company’s valuation will be stripped back to a more natural look.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
Oddity Tech, the parent company of beauty brands Il Makiage and Spoiled Child, submitted documents to regulators for an initial public offering on the Nasdaq stock exchange on June 23.
Goldman Sachs, Morgan Stanley and Allen & Co. are listed as the lead underwriters.
Editing by Jeffrey Goldfarb and Sharon Lam
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