Oddity Tech, an Israeli consumer tech platform for the beauty and wellness market, is going public this week in a deal that appears to be gaining traction.
The underwriters raised the proposed price range on Monday to $32 to $34 from $27 to $30 previously, a sign of solid demand from investors.
The company
ODD,
is planning to offer 10.5 million shares and would raise $357 million at the top of that range at a valuation of $1.9 billion. Goldman Sachs, Morgan Stanley and Allen & Co. are lead underwriters in a team of eight banks working on the deal.
Proceeds will be used for working capital and for developing new brands and other general corporate purposes. The company has applied to list on Nasdaq, under the ticker ODD.
The company, which was founded by an Israeli sister-brother team, is confident its high-tech approach to the beauty business gives it a strong advantage in an industry worth an estimated $600 billion that is still dominated by brick-and-mortar retailers.
“We believe this market is ripe for disruption, dominated by established, largely offline, wholesale models that we feel have not sufficiently evolved to meet changing consumer preferences for a digital, personalized, and customized experience,” says the prospectus.
The company, led by its first brand Il Makiage which was launched in 2018, was the fastest-growing global beauty direct-to-consumer platform from 2020 through 2022, says the prospectus, citing trade magazine Women’s Wear Daily.
Il Makiage was also the fastest-growing digital, direct-to-consumer beauty brand in the U.S. through 2021, says the IPO prospectus, citing data from Digital Commerce 360, which is its most recent available.
The second brand, SpoiledChild, launched in 2022 with the goal of disrupting the wellness category online, and is scaling even faster, says the prospectus.
The company now has more than 40 million users on the platform that have generated more than 1 billion data points on their beauty preferences. As of end-March, Oddity had more 4 million active customers, or customers that had made at least one purchase in the last year.
Renaissance Capital, a provider of IPO exchange-traded funds and institutional research, notes that recent consumer deals have fared well, led by Cava Group Inc., the Mediterranean-style restaurant chain that went public in mid-June at $22 a share and was last trading at $47.06.
For more: Cava Group CFO is confident restaurant chain will be profitable—but she won’t say when
See also: Like choosy shoppers at a retail store, IPO investors are demanding discounts and displaying price sensitivity
“Oddity has both impressive growth and margins thanks to youth-oriented marketing,” said Bill Smith, Renaissance co-founder and chief executive in commentary.
Still, “longer-term, that viral growth is often a double-edged sword, and reliance on trendy branding can quickly become a liability,’ he added.
Here are five things to know about Oddity ahead of its IPO:
Oddity is profitable and showing growth
Unlike other recent IPOs, including Cava Group, Oddity is profitable, chalking up net income of $19.6 million in the quarter through March 31, up from $3.0 million in the year-earlier period.
Revenue rose to $165.7 million from $90.4 million.
The company is expecting a “meaningful’ portion of its future revenue will stem from future brand launches “that will seek to disrupt markets in the beauty and wellness space that have been historically underpenetrated online.”
Oddity is serious about technology. Very serious.
Oddity prides itself on what it calls its “outsider” approach: “We are a technology company seeking to reinvent every aspect of a massive industry,” says the prospectus.
Consequently, its tech team is the biggest at the company and accounts for more than 40% of its total headcount. The company invests heavily in data science, machine learning and computer vision — and it takes finding that talent seriously.
“We take enormous pride in our tech team. We recruit from the most attractive pockets of talent in the world, and our tech team receives focus from the highest levels of leadership in our organization,” says the prospectus.
From its Tel Aviv base, its R&D organization has attracted talent from elite Israeli technology centers including the Israeli Defense Forces’ Unit 81, its Special Operations Division’s technology unit.
That also means one rather unusual risk factor. “Our operations may be disrupted by the obligations of our personnel to perform military service,” says the prospectus.
Oddity uses A.I. — because of course it does
Oddity uses artificial intelligence to help consumers identify the correct products, formulations and shades, eliminating the need for them to go to a physical store and test samples. Its patented software allows smartphone cameras to provide hyperspectral information — which can otherwise only be obtained using expensive equipment costing $20,000 or more, says the prospectus.
“By applying unique, physics-based AI technology to recover and interpret this hyperspectral information, we can analyze skin and hair features, detect facial blood flows, monitor heart-rate, and create melanin and hemoglobin maps,” it says.
The beauty editors at the magazine Cosmopolitan are impressed, according to an article published in February. The editors tested the Il Makiage foundation called Woke Up Like This, which comes in 50 shades. The correct shade is determined by the company based on a quiz, which covers such issues as skin type, application and tone.
Can a foundation seen only through a screen really live up to such high expectations? the editors asked.
“According to the 469,000 people who have left an independent 5 star review, yes. Not only do thousands of make-up wearers sing the foundation’s praises, but it’s also the most-reviewed product in the U.S.—no big deal,” they wrote.
It has a dual class structure
Oddity has a dual class structure with Class A and Class B shares with different voting rights. The Class A shares carry one voting right, while the Class B shares have 10 voting rights.
Co-Founder and Chief Executive Oran Holtzman will own about 76.9% of the voting power once the deal is completed, meaning ordinary shareholders will have little say in how the company is run.
Holtzman, and his sister and co-Founder Shiran Holtzman-Erel, who is chief product officer, are viewed as key employees and the possibility that they would leave the company is listed as a risk factor.
It has no plans to pay dividends
Like many young companies, Oddity has no immediate plans to offer dividends. That means any value from the stock will have to come from price gains.
The Renaissance IPO ETF
IPO,
has gained 41.4% in the year to date, while the S&P 500
SPX,
has gained 17%.
See: Money-losing food chain Cava showed IPO success. Is it finally time for some tech deals?
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