Oddity Tech Ltd. (ODD) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed financial performance, with strong revenue growth and gross margin expansion, but significant challenges in advertising costs, algorithm issues, and lack of guidance. The Q&A section highlights unresolved algorithm issues and high CPAs affecting growth. Despite optimism around METHODIQ, the lack of clear resolutions and guidance, along with compressed margins and increased costs, indicate negative sentiment. Given the market cap, this suggests a negative stock price movement between -2% and -8%.
Key Financial Performance
Revenue Revenue increased 25% to a record $810 million. This growth was driven by an increase in orders and strong repeat sales, despite challenging user acquisition costs in H2.
Adjusted EBITDA Adjusted EBITDA reached a record $163 million, representing a 20.2% adjusted EBITDA margin. This was achieved despite increased advertising costs and planned investments in growth initiatives like METHODIQ and ODDITY LABS.
Cash and Cash Equivalents The company finished the year with $776 million in cash and cash equivalents, driven by a successful exchangeable note offering and free cash generation of $84 million for the year.
IL MAKIAGE Revenue IL MAKIAGE grew revenue by low double digits to approximately $560 million. Growth was supported by the success of IL MAKIAGE Skin, which expanded to 40% of brand revenue from 30% in 2024, and strong performance in international markets.
SpoiledChild Revenue SpoiledChild increased revenue by double digits to approximately $250 million, showcasing the scalability of the platform for an online-only brand launched just 4 years ago.
International Revenue ODDITY International revenue grew 42% for the year, representing 17.5% of overall net revenue for 2025. This growth was driven primarily by IL MAKIAGE.
Gross Margin Gross margin for the year was 72.7%, expanding by 30 basis points year-over-year due to cost efficiencies.
Advertising Costs Advertising costs increased approximately 50% year-over-year, reflecting growth investments in international markets, METHODIQ, and higher acquisition costs for IL MAKIAGE and SpoiledChild.
Free Cash Flow Free cash flow for the year was $84 million, though Q4 was negatively impacted by $19 million due to increased inventory investments, including for METHODIQ.
Q4 Revenue Net revenue for Q4 grew 24% to $153 million, driven by an increase in orders, though average order value declined slightly year-over-year.
Q4 Gross Margin Gross margin for Q4 was 70.5%, compressing 220 basis points year-over-year due to product mix.
Q4 Adjusted EBITDA Adjusted EBITDA for Q4 was $13 million, with an adjusted EBITDA margin of 8.2%, compressing 410 basis points year-over-year due to planned investments and higher media costs.
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Operating Highlights
Launch of METHODIQ: Successfully launched METHODIQ, a medical telehealth platform focusing on dermatology, addressing issues like acne, hypopigmentation, and eczema. Early metrics show good traction and engagement.
ODDITY LABS innovation: ODDITY LABS is advancing ingredient innovation in beauty and wellness, focusing on acne, hyperpigmentation, and aging. They are leveraging AI and expanding into peptides for targeted solutions.
Product pipeline: Plans to launch 8 products in 2026 using ODDITY LABS molecules, targeting key categories like acne, eczema, and hypopigmentation.
International market growth: International revenue grew 42% in 2025, now representing 17.5% of overall revenue. IL MAKIAGE was a key driver.
Revenue growth: Achieved record revenue of $810 million in 2025, a 25% increase year-over-year.
Repeat sales: 70% of revenue in 2025 came from repeat sales, with strong customer cohort behavior and over 100% 12-month net revenue repeat rates for 2024 cohort.
Advertising challenges: Faced increased user acquisition costs due to algorithm changes by a major advertising partner, impacting profitability and acquisition efficiency.
Focus on growth investments: Continued investments in ODDITY LABS, tech infrastructure, and new brands despite challenges in user acquisition costs.
Adaptation to advertising changes: Implemented remediation actions to address algorithm changes affecting Try-Before-You-Buy model, aiming for normalization in H2 2026.
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Risk or Challenges
User Acquisition Costs: ODDITY experienced an unprecedented increase in user acquisition costs due to algorithm changes by its largest advertising partner. This has severely impacted the company's ability to acquire new users efficiently, particularly in the first half of the year. The issue is expected to negatively impact 2026 financial results, especially in H1.
Algorithm Changes Impact: The algorithm changes have diverted ODDITY to less desirable auctions and traffic at abnormally high costs. This has disproportionately affected the Try-Before-You-Buy model, which has higher return rates and is less compatible with the new algorithm dynamics.
Advertising Costs: Advertising costs increased approximately 50% year-over-year, driven by higher acquisition costs for IL MAKIAGE and SpoiledChild, as well as growth investments in international markets and the METHODIQ brand launch.
Inventory Build-Up: Free cash flow in Q4 was negatively impacted by a $19 million increase in inventory, partly due to new inventory investments in METHODIQ and seasonal inventory build-up.
Revenue Decline in 2026: Due to the elevated acquisition costs and reduced user acquisition activity, Q1 2026 sales are expected to decline approximately 30%, with further declines likely in Q2. This will also result in lower repeat sales later in the year.
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Guidance & Outlook
Revenue Expectations: The company expects a decline in Q1 2026 sales by approximately 30% due to reduced acquisition revenue. Q2 sales are also likely to decline, but the magnitude is uncertain. Full-year 2026 guidance is not being issued due to uncertain timing of recovery.
User Acquisition Costs: The company is experiencing unprecedented increases in new user acquisition costs due to algorithm changes by its largest advertising partner. Remediation actions are underway, with significant progress expected in Q2 and normalization anticipated in Q3 or Q4 of 2026.
Product Development and Launches: ODDITY plans to launch 8 products in 2026 made with ODDITY LABS molecules, focusing on categories like acne, eczema, and hypopigmentation. METHODIQ's innovation pipeline is particularly promising.
Long-term Growth Strategy: The company remains committed to its long-term growth strategy, focusing on consumer adoption of high-performance products and leveraging its platform for scalability. Despite current challenges, the company is not changing its model or strategy.
Financial Position: ODDITY has a strong liquidity position with $776 million in cash and cash equivalents. The company plans to opportunistically repurchase stock at recent share prices.
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Shareholder Return Plan
Share Repurchase Authorization: There's $103 million remaining on our previously announced repurchase authorization. As for potential uses of cash, we believe repurchasing our stock is attractive at recent share prices and intend to opportunistically return cash to shareholders through buybacks.
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Key Q&A
Q:When did the issue related to the algorithm change start, and has it stabilized?
A:The issue was first observed in the second half of 2025 and was called out during the November earnings call. It worsened as the company entered 2026 and began scaling its business. While some improvement was noted, the dislocation became evident in Q1 as scaling continued.
Q:Does the issue with Try-Before-You-Buy mean the company will deemphasize it?
A:The company believes the issue is solvable with the current business model and does not plan to move away from Try-Before-You-Buy. They are working on fixes, including deep signals audit, UI/UX adjustments, infrastructure improvements, new prediction models, and audience strategies.
Q:Why is there no guidance for the remainder of the year, and will user acquisition shift to later quarters?
A:The company is navigating significantly higher CPAs, in some cases over 2x higher than last year, which has led to a pullback in acquisition spending. This impacts near-term EBITDA and creates a carryover effect into the second half of the year. The company views this as a temporary issue and does not plan to change its direct-to-consumer distribution strategy.
Q:How does the company plan to strategize around high CPAs, and what are the retention rates?
A:The company is balancing spending to keep the algorithm fed while avoiding overspending at high CPAs. Retention rates remain strong, with repeat revenue accounting for 70% of sales in 2025. The 12-month net revenue repeat rates have increased, and recent cohorts show better repeat rates than the prior year.
Q:What is changing within the company's funnel, and why is this issue having a large impact?
A:The issue is global and affects all brands, making it harder to grow without overspending. For the largest ad partner, platform orders make up just under 25% of revenue. The company has relationships with many ad partners, but scaling with each is limited, amplifying the impact of this issue.
Q:What fixes are being implemented to address the dislocation?
A:The company is making both structural and technical fixes, including adjustments to infrastructure, offerings, and signals. They are running multiple variants simultaneously and leveraging their in-house capabilities to address the issue.
Q:Are there areas of strength that could offset the weakness, such as international opportunities or the Brand 3 rollout?
A:The launch of Brand 3, METHODIQ, has been successful and is growing faster than previous brands. However, international opportunities still require user acquisition, and the company does not want to overspend to meet revenue goals.
Q:How is the company balancing fixing the current issue with long-term investments?
A:The company continues to invest in growth areas such as ODDITY LABS, Brand 4, and new product development while prioritizing fixing the current issue. There are no plans to delay the launch of Brand 4.
Q:How does the dislocation impact the launch of METHODIQ?
A:The dislocation does not significantly impact METHODIQ as it is relatively small and can grow without being heavily affected by the current issues. The company expects to meet its targets for this brand in 2026.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific causes of the algorithm dislocation and provided limited clarity on the exact technical or strategic adjustments being made. Additionally, while they expressed confidence in solving the issue, their responses lacked detailed timelines or measurable outcomes for resolution.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
IL MAKIAGE
MAKIAGE Skin
METHODIQ
ODDITY LABS
SpoiledChild
Try Buy
ability user
accomplishment
acquisition cost
aging
algorithm change
app
auction
beauty wellness
change algorithm
competition
dislocation user
edge case
engagement
highlight
hypopigmentation
normalization
partner
peptide
platform ability
power platform
purchase
release today
remediation action
root cause
success focus
user acquisition
work biology
ODD Transcript
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Oddity Tech Ltd. (ODD) Q4 2025 Earnings Call Transcript
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The earnings call reveals mixed financial performance, with strong revenue growth and gross margin expansion, but significant challenges in advertising costs, algorithm issues, and lack of guidance. The Q&A section highlights unresolved algorithm issues and high CPAs affecting growth. Despite optimism around METHODIQ, the lack of clear resolutions and guidance, along with compressed margins and increased costs, indicate negative sentiment. Given the market cap, this suggests a negative stock price movement between -2% and -8%.
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The earnings call summary reveals mixed signals: strong financial performance and optimistic guidance, but concerns about new customer acquisition and the health of the U.S. consumer. The Q&A section highlights uncertainties around METHODIQ's financial impact and management's reluctance to provide specific guidance. While international expansion and new brand launches are positives, the lack of clarity on key metrics and potential external market softness tempers enthusiasm. Given the company's market cap, these factors suggest a neutral stock price movement over the next two weeks.
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