ODDITY Tech Battles Ad Shock in Tough Earnings Call
ODDITY Tech Ltd. Class A ((ODD)) has held its Q1 earnings call. Read on for the main highlights of the call.
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ODDITY Tech’s latest earnings call painted a picture of a company grappling with a sharp operational shock yet working methodically toward recovery. Management acknowledged a severe hit from a key advertising partner that crushed new customer acquisition and profitability, but they also highlighted early signs of stabilization, strong liquidity, and confidence in rebuilding momentum over the next 18 months.
Advertising Algorithm Dislocation Hits Growth Engine
A major technical disruption at ODDITY’s largest advertising partner sent cost‑per‑acquisition soaring across key markets including the U.S., Canada, the U.K. and Australia. Some CPAs ran about double internal expectations, crippling the efficiency of digital marketing and undermining the algorithmic targeting that underpins the company’s growth model.
Sequential CPA Improvement Offers First Sign of Relief
In May, IL MAKIAGE saw an estimated 28% sequential reduction in CPA versus April, the first month of improvement since late 2025. Management framed this as an important inflection point, suggesting that remediation efforts and partner fixes are starting to gain traction even though acquisition costs remain well above historical levels.
Ad Partner Sees 40–60% Recovery Potential
ODDITY’s primary advertising partner believes its own systems can restore 40% to 60% of the lost CPA efficiency, independent of macro conditions. Executives argued that regaining this range would be enough to reestablish healthy unit economics and eventually reopen the path to profitable growth.
Revenue Drop Less Severe Than Feared
First‑quarter net revenue fell 26% year over year but came in slightly better than the company’s prior outlook for roughly a 30% decline. Management pointed to this modest outperformance as evidence that rapid response measures, including channel tests and funnel adjustments, helped cushion some of the top‑line damage.
METHODIQ Telehealth Shows Early Momentum
The newly launched METHODIQ medical telehealth brand is off to a strong start, with encouraging app downloads, weekly check‑ins and care‑team engagement. ODDITY expects the business to reach about $25 million in revenue in 2026, framing it as a new, tech‑driven growth vector adjacent to the company’s core beauty franchises.
Try‑Before‑You‑Buy Exposure Cut Without Hurting Economics
Toward the end of the quarter, ODDITY shifted roughly 40% of acquisition revenue away from its complex Try Before You Buy program into standard purchases. Management reported no adverse impact on unit economics, suggesting they reduced operational risk and funnel complexity while preserving profitability per customer.
Repeat Cohorts Remain a Bright Spot
Despite the acquisition shock, repeat customer behavior held up well, with management citing 12‑month repeat rates above 100%. Repeat sales represented about two‑thirds of net revenue in Q1, up from around 56% a year earlier, highlighting the resilience and value of the existing customer base.
Strong Liquidity and Aggressive Buyback
ODDITY ended the quarter with $667 million in cash, equivalents and investments plus an undrawn $350 million credit facility, giving it substantial balance‑sheet flexibility. The company repurchased around six million shares for about $82 million, cutting ordinary shares outstanding by roughly 10% with $167 million still available under its buyback plan.
R&D and Product Pipeline Drive Long‑Term Story
ODDITY Labs introduced two new METHODIQ products, Neurexa and Zeralaq, during the quarter and continues work on anti‑aging, hypopigmentation and acne‑prevention molecules. Management emphasized that this innovation pipeline is central to creating differentiated, science‑based offerings that can fuel future growth once marketing channels normalize.
Revenue and New Orders Suffer Major Hit
The advertising disruption led to a 26% drop in net revenue and a roughly 50% decline in first orders year over year in Q1. This steep fall in new customers shrinks the future pool for repeat purchases, creating a headwind that is likely to pressure revenue for several quarters even if acquisition costs improve.
Profitability, Cash Flow and Margins Under Pressure
Adjusted EBITDA turned negative $7 million in the quarter and adjusted diluted EPS slipped to a loss of $0.17, while free cash flow was negative $21 million. Gross margin fell to 69.7%, down about 520 basis points, as product mix shifts, slightly lower average order values and remediation testing created short‑term pressure on profitability.
Media Uncertainty Clouds Near‑Term Outlook
Management warned that media and platform dynamics remain volatile, limiting visibility into the rest of the year and complicating forecasting. For now, they are assuming CPAs stay challenging in their models, signaling a cautious stance and acknowledging that recovery will not be linear.
Operational and Secondary Brand Headwinds
ODDITY exited Q1 with slightly elevated inventory as sales lagged purchase plans, and various funnel experiments caused temporary operational disruption. SpoiledChild, the company’s secondary brand, is also suffering higher CPAs, though less severe than IL MAKIAGE, underscoring that the advertising issues are broad rather than isolated.
Guidance Points to Near‑Term Pain, Longer‑Term Recovery
For Q2, ODDITY expects net revenue to decline 25% to 30% year over year but to return to positive adjusted EBITDA of $8 million to $10 million, with profitability for the full year. Management is banking on further CPA normalization, the continued strength of repeat cohorts and growing contributions from METHODIQ to support a return to growth and profitability in the second half of 2026.
ODDITY’s earnings call underscored a difficult but potentially transitory setback driven by an external algorithm shock to its marketing engine. Investors will be watching closely to see whether CPAs continue to normalize, new‑customer acquisition rebounds and the company can translate its strong balance sheet, product pipeline and loyal repeat base into a sustainable recovery path.
