Using AI to 4x Oddity -> $10B

TLDR;

• Hola from almost Espana

• Taking Oddity The Oracle of Beauty to from $2.7B - $10B

LBAB Community:

I'm writing this 1 on a plane to Spain somewhere over the middle of the Atlantic right now. This week, I’m heading to Gorgias’s Annual Retreat. Currently, all 250 - 300 Gorgians are about to meet in Barcelona for a 1 week offsite. We’re getting the whole company together.

It got me thinking about the importance of getting the whole team together. Now, it might seem “too expensive”, but I actually think it is incredibly important and always reminds me of my optimal Hybrid -> In-person playbook.

I’m a big believer as the biz scales:

1. Early Days: In-person 

2. Scale Stage: Remote 

3. Eventually every biz gets so big they have to become hybrid. 

Think Fortune 500 bizs 15 years ago. They have many offices all over the world that communicate with each other. No one thinks about it this way, but it’s a “hybrid” model.

So, how often do you invest in Face Time?

My Optimal cadence is every 6 - 8 weeks: 

• Have all senior leadership meet in an office/location for 3 days of deep work/planning together. 

• Then, run 6-8 week sprints, so everyone can maximize their productivity. 

It provides the right balance of alignment, strategic vision, and adaptability. It also allows everyone for deep productive work to get those projects done.

This is the exact cadence we ran at LuMee, and it was great. It led us to optimal efficiency where the team would:

1. Prepare topics and strategies on our stable cadence.

2. Set our major priorities then execute them.

3. It was basically quarterly planning, but we did it 6x/year instead of 4.

How are you running your team alignment and strategy? I’m sure I’ll have some great photos from Spain when I come back next week.

Now, let’s dive into one of the hottest Beauty/Cosmetic bizs you don’t know about: Oddity. Shoutout to Bobby Missry for requesting the Emoji Review for this biz. Hope I make you proud on this one.

Let’s Examine This Biz

Oddity Tech (Parent Co. of IL Makaige + Spoiled Child) is proving AI works in Merchandising, and brand building.

It’s been public for <1 year, its future looks bright. This biz looks very overhyped yet undervalued compared to the market.

• Trading at $43/share 

• $2.4B market cap, 

• -18% since July ‘23 IPO

This biz needs to stop trying to convince everyone it’s a tech company and accept itself for who it truly is. A beauty biz run by a bunch of tech nerds.

When looking at comps, its 46x P/E ratio is currently smack dab in the middle of the market. Considering how fast this biz is growing, we’re going to scoop it up at a premium ($3B), fuel the insane growth trajectory (+46% YoY), and ride this biz out to a $10B exit.

Financial Summary

TLDR Analysis: Move Over ELF, there’s a new kid in town.

• Topline +46% YoY at 9 Figs. 🤤

• COGS (+52%) outpaced Topline (+46%). 😟

• Net Income (+56%) = the fastest growing stat YoY 🤤🤤

• 67% Gross Margins, but SG&A is 59% of Rev.

Oddity’s P&L is incredibly similar to ELF’s (ELF = Topline: $392m+, NI: $21.8m), but it’s 1/4 of ELF’s cap. For a company that is 9 years younger, that’s surprising, given such rapid growth, but it’s explainable since they don’t have 12 straight quarters of profitable growth. 

This biz is on 🔥🔥🔥. While they have a unique SG&A structure (40% of headcount is the Tech team), they’re poised to become the next Estée Lauder and dominate multiple categories in the Beauty/Wellness space. 

This is the 1st biz I’m not going to lay into for having such a large Tech team. Because they’re actually using them correctly.

With a biz with such strong fundamentals how could I?

Let’s Buy This Biz! and propel its momentum to our new island in the Seychelles.

Let’s Scale This Biz!

Here are the 3 ways this biz is absolutely nailing it on all fronts. And how they can scale each to the $10B cap level.

1) Tinder for Looks -> Favorites to Wishlist.

IL Makiage is reinventing both Shopping Curation + the Wishlist by taking Beauty Influencer content -> creating a gamified experience -> tying it back to products -> Pre-bundling a simple buying experience for customers.

Basically. A tinder like experience to match with the right beauty look.

You already know the UX from here. Instead of getting matched to go on a date, every “like” saves the “Look” to a “Loved Looks” list. 

This is 1 of the most inspired shopping experiences I’ve seen in a while.

Inside each Look is the influencer content on how to recreate it. Also embedded on that page are the products the influencers use in the video, with an easy add to cart UX.

This is the future of Merchandising. 

Drop an aspirational state + full toolkit customers need to accomplish it. 

• Removes the need to imagine the value of what they’re buying.

• Boosts AOV by naturally bundling products.

• Leverages Influencer content off platform.

• Gamifies the mobile shopping experience. Dwell time -> sell time.

Immediately solving customers’ needs while building a funnel that naturally drives more sales for you biz is how a 9-fig brand hits +56% NI YoY.

And if Tinderifying a look isn’t a customer’s speed, they always have the traditional shop by product UX as well…

This is what you have tech @ 40% of headcount work on. Solving REALLY hard technical problems to create elegant, simple CX.

Where does this go from here? True Personalization.

IL Makiage will have all of their customers' purchases, product viewing, reviews, CS data, and favorite Looks in 1 data set. Collecting all the data is the daunting part. Now they can cook.

Optimize the Products, Looks, and overall CX around each individual customer. 

1. For Looks: Use the Netflix/Pandora AI model. 

   1. Recommend other, similar Looks based on what Looks other customers liked.

2. For Products: Use the Amazon model.

   1. Purchases + Saved items to recommend specific products/bundles to customers to buy more.

   2. This isn’t just for makeup, but can extend to Spoiled Child’s Haircare/Wellness

3. Customize product solutions for each individual customer.

   1. There’s a fine line between scale & feasibility here. But if they can “Custom” build products for each customer, it opens a super premium offering.

Collect as much relevant customer info as possible. It doesn’t always have to be demographic, but it should always be relevant + provide a better shopping experience.

Takeaway: More customer data = Better (more profitable) shopping experience.

2) Split Product categories into Separate, Relevant Brands. Then Expand.

When to start a new brand vs. put a new category under the current brand?

☝️ Always the toughest decision for a high-growth biz. 

All options are exciting, but splitting yourself over 2 skis vs. building a brand house that sells a bag of doorknobs is a critical and next to impossible decision to make.

Oddity really threads that needle well. I don’t have hard data on this one, but it’s like art. You just know it when you see it.

1. IL Makiage: The prestige Beauty/Cosmetics biz

2. Spoiled Child: The new age Haircare/Wellness biz

Both are going after the same “prestige” customer, owning “everything above their neck” with a quiz + “personalization” as their entry point into the brand. They split the primary use case around Makeup vs. Haircare. A brilliant use of different brands to own related, but distinct categories. 

And they know it, brilliantly cross-promoting both brands to each other.

My favorite part of this biz is we don’t need to get crazy with the roadmap. The path from here is actually more obvious than it might appear.

AI-ify the typical Beauty empire: Makeup, Skincare, Haircare, Perfumes, Wellness/Supplements. 

1. Leverage AI to “personalize” the product offerings, 

2. Throw it in expensive-looking packaging, 

3. Launch a cool, aesthetic brand. 

Spoiled Child is the perfect ex. of this, launching in 2022 after IL Makiage’s success. Rinsing and repeating the playbook in a new category with a meteoric launch.

With a Perfume biz, they’ll have the hat trick and will look a lot more like the Beauty magnates (Estée Lauder, Coty, L’Oreal, etc.). This is already a massive brand, but can we make it universal?

If we’re going to amp this up a notch, then create different brands at different price points to address different market buyers.

1. IL Makiage & Spoiled Child are the Prestige options. 

2. Launch new brands at more accessible price points. 

3. Then more at more luxury prices. 

It’s the same goop/scents in the bottles with more, or less, expensive packaging. It’ll take 15 years, but in the end, the biz will be worth $50B.

Takeaway: Angels get their wings when Bizs nail Brand-Merchandising selection.

3) Train the model against ALL Social Data.

If they aren’t already doing this, they’ll probably have to pay Meta/Bytedance through the nose, but this is how you dominate the whole ballgame. They need to get access to the Social API firehose to train their AI models against all Beauty/Skincare/Haircare content to predict what trends are emerging + what’s coming next.

40m Users inputting their data into Oddity’s .Coms powers an incredible amount of data to build the hottest products. There’s a reason this biz is a 🚀🚀.

But there are 4B women in the world! What if they could train their model on all the data?

Imagine if Oddity could predict the next Beauty trend from the trillions of data points on Social + TV, not just the 40m they collect from their users. 

The insights would be infinite. They’d become the Oracle of Beauty, bringing products to market faster than any other Beauty biz. Potentially even bringing products to market before they are trending.

Then, they play the market maker game, becoming both the creator + supplier of the dominant Beauty trends. An insanely profitable lock in.

[Think Apple for the 15 years post iPhone release.]

The more interesting side effect of this herculean challenge is the supply chain innovation required for this adventure. 

Whether it’s using AI to create novel compounds to produce new types of products, or fundamentally remapping their manufacturing and fulfillment processes...

The pursuit of the insane dream would require a list of major sub-innovations that will forever change their biz and the game.

And when you own that. You have a monopoly.

Takeaway: Ingest the Social Firehose. Own the future of Beauty.

We’re going to buy this biz and ride their new GTM model to a $10B value. Then I’ll finally get that island I’ve always been dreaming of.

Final Thought

Let’s not get lost in the hype. Oddity is not a tech biz, but a Health & Wellness biz that leverages tech as a competitive advantage to make better products. But under no uncertain circumstances are they a Consumer Tech biz. 

That being said, they’re trading at what feels like a high P/E Ratio (46x) until you look at others in the category:

• ELF: 73.8x

• Estee Lauder: 88.7x

• COTY: 29x

46x doesn’t sound so ludicrous anymore. If I showed you Oddity & ELF’s P&Ls side by side,  you wouldn’t be able to tell them apart. 

So why is there a massive delta in the 2? 

Oddity is just too new for investors to trust. ELF has seen consistent, repeatable, profitable growth for 12 straight quarters. And the most incredible part is how Oddity at IPO has basically the same P&L as ELF (8.7B cap) which IPO’d in 2016. Quick reminder: Oddity was founded in 2013. 

Oddity might be seen as high-risk and wild card, looking like an Israeli version of a Silicon Valley implosion waiting to happen. And the current we’re-a-tech-biz narrative isn’t helping that.

But what I see is a beauty biz with a better mousetrap, sprinting at an enormous consumer market.

The Street’s wrong perception is our opportunity to make Billions. This isn’t some overfunded, overhyped biz that’s lighting piles of cash on fire to figure out the future of retail tech.

It’s an actually profitable biz, focused on using Technology to create better products and experiences for customers with strong buying behaviors and deep pockets. 

Yea, I’m calling you out, Big-1x-Purchase Bizs with Toilet LTV: Allbirds, Warby Parker, Casper.

…+ This biz is actually Net Income profitable.

They’re already in multiple categories, growing faster, and targeting a wealthier customer than ELF. This stock will increase 2x on investors putting them in the same bucket alone. Or cut ELFs P/E ratio in half.

I’m betting on the 2x.

🧠 The Takeaways

Oddity is leveraging Tech/AI to scale its prestige new age Beauty & Wellness brand faster than the biz it disrupts.

1. Collect as much relevant customer data as you can. Gamify your Shopping experience with it.

2. To expand or create a new brand? That is always the question.

3. Once you’ve hit meaningful scale, it’s time to open the aperture again.