Beauty and tech company Oddity, which runs Il Makiage, files to go public

Beauty and tech company Oddity, which runs the Il Makiage and Spoiled Child brands, filed to go public Friday as the once-frozen IPO market warms up. 

The Israel-based company plans to trade on the Nasdaq using the ticker ODD. The company didn’t immediately disclose how the offering would be priced in regulatory filings and declined comment when asked when the numbers would be released.

“The number of shares to be offered and the price range for the proposed offering have not yet been determined. The offering is subject to market conditions, and there can be no assurance as to whether or when the offering may be completed, or as to the actual size or terms of the offering,” Oddity said in a press release.

Launched in 2018 by brother and sister duo Oran Holtzman and Shiran Holtzman-Erel, Oddity uses data and AI to develop brands and make tailored product recommendations for customers.

The business is seeking to disrupt a market long dominated by legacy retailers by replacing the in-store experience with product recommendations driven by AI and data. At the heart of its business model is its proprietary technology — including tech developed by a former Israeli defense official — and the billions of data points it has collected from its millions of users.

In the three months that ended March 31, the company saw $165.65 million in revenue, up from $90.41 million in the year-ago period. It reported a net income of $19.59 million, or $5.34 a share, compared with $3.01 million, or 82 cents a share, a year earlier.

Numbers revealed in its regulatory filing show the direct-to-consumer retailer has been profitable on an annual basis since at least 2020.

In fiscal 2022, Oddity brought in $324.52 million in sales and saw a net income of $21.73 million, or $5.94 a share. In the year prior, the retailer saw $222.56 million in revenue and a net income of $13.92 million, or $4.01 a share.

In 2020, it saw $110.64 million in sales and a net income of $11.71 million, or $3.45 a share.

By comparison, when E.L.F. Beauty filed to go public in August 2016, its profits and sales were lower than Oddity’s. E.L.F., a multibrand beauty company, saw $144.94 million in sales in fiscal 2014 and a net loss of $2.88 million. The following year, it saw $191.41 million in sales and a net income of $4.36 million. 

In fiscal 2016, it brought in $229.57 million in sales and a net income of $5.31 million. 

Since going public, E.L.F.’s sales and profits have climbed. During its most recent fiscal year, which ended March 31, it saw $578.84 million in sales and a net income of $61.53 million. 

As a direct-to-consumer retailer, Oddity is seeing the high margins that come along with the strategy. In the three months that ended March 31, its gross margins were 71%, up 4 percentage points from 67% in the year-ago period. Its annual margins have slipped each year since 2020 as the company has made acquisitions and invested in growing the business.

In 2020, Oddity had an annual gross margin of 70%, and in 2021, it dropped 1 percentage point to 69%. In 2022, the retailer’s annual gross margin was 67%, down 2 percentage points from the year-ago period.

As of March 31, the company had more than 4 million active customers, which it defines as a unique customer account that made at least one purchase in the preceding 12-month period.

“We bring visitors to our website, turn visitors into users by asking questions and learning about them, and then leverage the data we have across the platform to convert them into paying customers,” a regulatory filing says.

Oddity has launched internationally, and sales from those markets accounted for about 26% and 27% of its net revenue in fiscal 2022 and 2021, respectively. As of Friday, Oddity has launched in the U.S., Canada, U.K., continental Europe and Australia. It noted it has plans to keep growing that footprint.

The company plans to use proceeds from the IPO to develop and launch new brands. It will also use the funds for working capital, other general corporate purposes and potentially for acquisitions and other investments.

During an interview earlier this year, the company’s global chief financial officer, Lindsay Drucker Mann, a former Goldman Sachs executive, told CNBC that Oddity is making money and growing — even against a tough macroeconomic environment that has proven increasingly risky for purely digital retailers. 

On average, Oddity’s gross sales have doubled each year since 2018, the company has said.

In Spoiled Child’s first year on the market, the new brand brought in $48 million in gross sales, which does not include returns. 

In a regulatory filing, Holtzman, the company’s CEO and co-founder, said the company recruits from the Israeli Defense Forces’ best technology units. Technologists comprise over 40% of its global head count.

“As industry outsiders, we saw many shortcomings in the status quo approach. The empires that incumbents had built over decades had not evolved with the times, resulting in a significant lag in online adoption,” Holtzman wrote in a founder’s letter enclosed in a securities filing.

“Their underinvestment in technology left the category behind the digital curve, despite a consumer who is inherently primed to buy online — spending significant time on social media for beauty content and rapidly shifting dollars online in other categories.”

Beyond developing new products and brands, Oddity is also trying to make beauty products more effective, the company has said. 

In late April, it announced it was investing more than $100 million to acquire biotech startup Revela and open a U.S.-based lab.

The merger brought to Oddity a team of scientists tasked with creating brand-new molecules, using artificial intelligence, that can be used in its cosmetics brands and future lines.

In 2021, Oddity acquired Voyage81, a deep tech AI-based computational imaging startup founded in 2019 by Niv Price, the former head of research and development for one of the Israeli Defense Forces’ elite technological units, along with Dr. Boaz Arad, Dr. Rafi Gidron and Omer Shwartz.

The technology is capable of mapping and analyzing skin and hair features, detecting facial blood flows, and creating melanin and hemoglobin maps using a regular smartphone camera.

The filing comes after a year and a half of a drought in the initial public offering market, which is just beginning to open up and show signs of green shoots. 

Earlier this month, Mediterranean restaurant chain Cava went public, and its shares soared as much as 117% in its market debut. 

“[In 2022] investors didn’t want to go anywhere near IPOs but now that they’re making money again, and with issuers seeing that they can achieve close to decent valuations, I think that’s bringing the people back into the market,” said Matt Kennedy, a senior IPO market strategist for Renaissance Capital.

“The consumer sector does lend itself to these periods where investors can see a business model that they understand, a business that they might be familiar with and also one that is typically profitable or near profitable, preferably that has growth.”