ODDITY Tech Earnings Call: Growth Meets Digital Shock
ODDITY Tech Ltd. Class A ((ODD)) has held its Q4 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 high‑growth beauty-tech player running into an abrupt digital speed bump. Management stressed record 2025 revenue and strong repeat purchases, yet the tone was tempered by a sharp spike in customer acquisition costs tied to a major ad-platform algorithm change, which is set to weigh heavily on 2026’s first half.
Record Revenue and Growth Outpace Long-Term Targets
ODDITY reported net revenue of $810 million for fiscal 2025, up 25% year over year and ahead of its long‑term growth goals. Management framed this as validation of the company’s digital-first model, noting that the performance beat internal plans despite a more competitive online environment.
Profitability Holds Steady at 20% Margin
Adjusted EBITDA rose to a record $163 million, translating to a 20.2% margin that is in line with ODDITY’s long‑term profitability target. Adjusted diluted EPS reached $2.21 for the year, underscoring that the business remains solidly profitable even as it invests heavily in growth and infrastructure.
Q4 Tops Expectations Despite Emerging Headwinds
Fourth‑quarter net revenue climbed 24% to $153 million, beating guidance of 21% to 23% growth as holiday demand and new initiatives outperformed. Q4 adjusted EBITDA of $13 million and adjusted EPS of $0.20 also came in above guidance, although margins narrowed as higher advertising and inventory costs began to bite.
Repeat Sales Underpin Attractive Unit Economics
Roughly 70% of 2025 revenue came from repeat customers, highlighting a loyal base that lowers long-term marketing needs. The 2024 cohort delivered a 12‑month net revenue repeat rate above 100%, improving on 2023 and reinforcing the economic logic of investing in new customer acquisition.
Brand Momentum and METHODIQ Launch Drive Diversification
Flagship brand IL MAKIAGE grew at a low double‑digit rate to about $560 million, with its skin segment rising to roughly 40% of that brand’s sales, up from 30%. SpoiledChild posted double‑digit growth to around $250 million, while new brand METHODIQ showed early traction and encouraging app engagement metrics.
International Expansion Adds a New Growth Engine
ODDITY International revenue jumped 42% for the year and now accounts for 17.5% of total net revenue, extending growth beyond the company’s U.S. core. Management sees global markets as a major long‑term opportunity and is leaning into performance marketing and localized offerings to build scale.
ODDITY LABS Fuels an Expanding Product Pipeline
The company continued to expand ODDITY LABS, combining in silico, in vitro and traditional biology capabilities, including work on proprietary peptides. It expects eight products using ODDITY LABS molecules to be in market in 2026, signaling a growing pipeline of differentiated formulations.
Balance Sheet Strength Supports Strategic Flexibility
ODDITY ended the year with $776 million in cash and equivalents and generated $84 million in free cash flow, leaving it well‑funded for volatility. The company also expanded undrawn credit capacity to $350 million and still has $103 million left on its share repurchase authorization, providing added financial firepower.
Ad-Algorithm Dislocation Spurs a CPA Shock
Management detailed an unprecedented disruption tied to its largest advertising partner’s algorithm, which drove customer acquisition costs to more than double in some cases. This sharply reduced the efficiency and scale of new user acquisition and exposed vulnerabilities in ODDITY’s heavy reliance on performance marketing.
Revenue Slowdown and Guidance Uncertainty Ahead
With new customer acquisition constrained, ODDITY expects Q1 2026 sales to fall by about 30%, with Q2 also likely to decline, although the size of the drop is unclear. Given this volatility and the unknown timeline for normalization, management chose not to issue full‑year 2026 guidance, signaling an unusually cloudy outlook.
Higher Ad Spend Squeezes Margins
Advertising costs rose roughly 50% year over year in 2025, reflecting international expansion, the METHODIQ launch and sharply higher acquisition costs. This spending helped fuel growth but contributed to margin compression, including a 410‑basis‑point decline in Q4 adjusted EBITDA margin versus the prior year.
Gross Margin Pressure and Inventory Build in Q4
Fourth‑quarter gross margin fell 220 basis points year over year to 70.5%, though it still came in above guidance as product mix shifted and costs moved higher. Free cash flow was also hit by about $19 million of inventory build, driven by seasonality and stocking to support METHODIQ, which tied up additional working capital.
Customer Acquisition Model Shows Its Vulnerability
The company’s Try‑Before‑You‑Buy offering, usually a key differentiator, appears to have become an edge case in the updated ad‑auction mechanics, possibly leading to lower‑quality auctions and higher CPAs. ODDITY has begun tweaking its models and offerings, but management acknowledged that the timeline for a full recovery remains uncertain.
Concentration Risk in a Single Ad Partner
Orders attributed purely to the largest ad platform account for just under one‑quarter of ODDITY’s total revenue, giving that partner outsized influence. Recent algorithm changes there had cross‑brand effects that weighed heavily on performance, even as relationships with other advertising partners remained stable.
Near-Term Profitability Under Pressure
At today’s elevated CPAs, first‑order customer acquisitions are not profitable, creating a meaningful drag on EBITDA and near‑term earnings. Management stressed that 12‑month contribution margins are still positive thanks to strong repeat behavior, but investors should expect margins to stay compressed until acquisition costs normalize.
Execution Risk and an Unclear Remediation Timeline
Remediation efforts span infrastructure changes, retraining models and adjusting the customer offer, and management hopes to see early progress in Q2 with potential normalization in the second half. However, they cautioned that these efforts are still in their early stages and that success, as well as timing, is not guaranteed.
Guidance: Sharp Early-2026 Hit, Potential H2 Stabilization
For 2026, ODDITY is only offering near‑term color, calling for roughly a 30% sales decline in Q1 and indicating Q2 will likely be negative as well. The company is working to bring CPAs back down and is targeting improvement in Q2 and potential normalization in the back half of the year, while emphasizing that the franchise remains profitable on a 12‑month basis.
Despite the algorithm shock and near‑term margin pressure, ODDITY’s call underscored that its core engine—repeat customers, strong brands and a solid balance sheet—remains intact. Investors now face a classic execution story: if management can fix acquisition costs and diversify ad risk, the company’s strong 2025 foundation could set up a renewed growth phase beyond 2026.
