ODDITY Tech Ltd. Q3 FY2024 earnings call

• The direct-to-consumer model is performing strongly, contrasting with competitors' slowing sales. The consumer shift online is a major growth driver, and ODDITY is the largest direct-to-consumer platform online. - Early investments in technology are paying dividends, enabling growth, profitability, and strong cash flows. Excess cash flows are redeployed to invest in technology, science, and new brands. - The global beauty market has a massive TAM of $600 billion. Existing brands IL MAKIAGE and SpoiledChild are on track for $1 billion revenue, with IL MAKIAGE set to cross $500 million this year. - New brands Brand 3 and Brand 4 will launch in the second half of 2025, leveraging the existing user base. - Technology innovation is a key driver, with teams expanding and algorithms improving for better personalization. - ODDITY LABS has 60 scientists, a new lab in Kendall Square, Boston, focusing on product innovation with science-backed products.

For the first 9 months of 2024, revenue increased 27% to $523 million. In the third quarter, net revenue grew 26% to $119 million. The strength was driven by IL MAKIAGE and SpoiledChild across various product categories. Repeat revenue accounts for over 50% of total revenue and increased as a percentage of the mix. For the last 12 months, revenue reached $621 million, representing a 30% growth, with an adjusted EBITDA margin of 24% and free cash flow of $127 million. The third quarter also saw adjusted EBITDA of $25 million and adjusted EBITDA margin of 20.8%, with free cash flow of $119 million year-to-date.

• 2024 full-year net revenue is expected between $642 million and $644 million, representing 26%-27% year-over-year growth. - Full-year gross margin is expected to be 71.5%, and adjusted EBITDA is between $147 million and $149 million. - Q4 net revenue growth is expected to be between 22% and 24%. - 2025 is expected to have net revenue growth of 20% and adjusted EBITDA margin of 20%, with significant investments in Brand 3, Brand 4, and ODDITY LABS, with no material revenue contribution from these initiatives in 2025.

• Market competition could impact growth. - International expansion carries uncertainties. - Dependence on technology innovation success for continued growth.

Q: Can you give more detail on the strong start in Q4 and update on Brands 3 and 4?

A: Lindsay Drucker Mann said Q4 started strong with continued good momentum from Q3, with cohorts performing at their best ever. Repeat rates and AOV (both first order and repeat) are at highs, driven by increased order size and mix shift to higher-priced products like skin. Oran Holtzman said Brand 3 and Brand 4 are progressing as planned, set to launch in the second half of 2025, and will leverage the existing user base of IL MAKIAGE and SpoiledChild.

Q: Can you unpack the top-line growth, AOV increase, and unit growth for 2025?

A: Lindsay Drucker Mann said AOV growth is due to increased order size (more items per order) and positive mix shift to higher-priced products. Oran Holtzman said generative AI is used for better personalization and customization, particularly for Brand 3 as it relates to telehealth and customization.

Q: Thoughts on international expansion and Brand 3's focus?

A: Oran Holtzman said international is a huge growth opportunity, with ODDITY already successful in Canada, U.K., Germany, and Australia, and international expected to be over 50% of business over time. Regarding Brand 3, it focuses on skin and body issues like eczema, not weight loss drugs.