Oddity Tech Stock Surges on Signs of Recovery After Algorithm Glitch
Oddity Tech, an Israeli beauty-tech company, saw its stock price jump approximately 24% in pre-market trading on Wall Street following the release of its second-quarter financial results. While the company reported a year-over-year decline in revenue and net profit, investors focused on forward-looking guidance, which indicated a potential stabilization of the issues affecting its IL MAKIAGE brand.
In the second quarter, Oddity Tech's revenue was around $181 million, a 25% decrease from $241 million in the same period last year. Net profit fell to $13 million from $49 million, and adjusted EBITDA was $13 million, down from $70 million. Adjusted earnings per share were 20 cents, compared to 92 cents a year prior. Despite these figures being lower than the previous year, they exceeded the company's own projections of a 25%-30% revenue drop and $8-$10 million in adjusted EBITDA.
The market's attention is primarily on the third quarter, for which Oddity Tech forecasts a revenue decrease of only about 5% and adjusted EBITDA of $18-$20 million. This represents a significant improvement from the 26% revenue decline in the first quarter and 25% in the second. For the full year, the company anticipates a revenue decrease of approximately 19% and adjusted EBITDA between $30-$32 million.
The stock's previous sharp decline was attributed to a problem discovered in February concerning the advertising algorithm of a major partner for its IL MAKIAGE brand. This algorithm change reportedly led to higher customer acquisition costs (CPA) and negatively impacted the economics of acquiring new customers. The company warned in February of a significant revenue drop, causing its stock to lose nearly half its value. Further reports in June showed continued struggles, with first-quarter revenue down 26% and a net loss of $21.4 million.
Oddity Tech continues to work with its advertising partner to address the algorithm issue, aiming to "retrain" it. While the problem is not fully resolved, the company expressed optimism about the progress and noted that the impact on revenue is beginning to moderate. The performance of its other brands, SpoiledChild and the new METHODIQ line, is also supporting the improved outlook, with SpoiledChild expected to grow at least 35% this year and METHODIQ showing strong initial results.
The company also repurchased approximately $163 million of its stock and $50 million in convertible bonds year-to-date, reducing its outstanding shares by about 20%. Oddity Tech ended the quarter with $561 million in cash and liquid financial assets, plus $350 million in unused credit lines. The current stock surge comes from a very low starting point, with the share price down nearly 80% from its 52-week high.
