AI hype embellishes Il Makiage IPO

Savers Value Village

06/07/2023 16:35

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Anita Ramaswamy
       NEW YORK, July 6 (Reuters Breakingviews) - Oddity Tech
has a sparkly foundation for its upcoming initial public
offering. The Israeli beauty company home to the Il Makiage and
SpoiledChild brands is highlighting the artificial intelligence
behind its makeup and machine learning algorithms that help
consumers pick the right shades. These features should help put
a dewy gloss on the valuation before the hype eventually fades. 
    Boss Oran Holtzman fancies Oddity a digital disruptor to the
vast appearance-enhancing industry. His company sells concealers
and eye shadows directly to shoppers online and touts that its
technology teams account for 40% of headcount. In addition, it
credits an expanding stockpile of customer data for rapid
revenue growth, which increased 46% last year, to $325 million,
and 84% in the first quarter of 2023 from a year earlier. AI
also powers Revela, a biotechnology firm it bought in April that
develops new molecules for cosmetics and skincare.
    It’s an opportune time to capitalize on such aspects of
Oddity’s business. Nearly all things AI have lifted stock
prices. What’s more, Mediterranean restaurant chain Cava
 CAVA.N  and thrift-store operator Savers Value Village  SVV.N 
have cracked open the stagnant IPO market for consumer-focused
companies. 
    During its last private fundraising round in January 2022,
just after the Nasdaq Composite Index  .IXIC  peaked, Oddity was
valued at $1.5 billion. The sum represented almost 7 times its
2021 revenue and more than 100 times its net income that year.
    Incumbent rivals Coty  COTY.N  and Estee Lauder  EL.N 
respectively trade at around 13 times and 21 times EBITDA for
the next 12 months, according to Refinitiv data. They’re more
mature companies, however, whose top lines are expected to
increase by no more than 10%. The faster-growing elf Beauty
 ELF.N , which sells comparatively inexpensive wares, fetches 37
times forward EBITDA. If Oddity were to grow that measure of
earnings, adjusted for share-based compensation and other
factors, by nearly 50%, as it did last year, it would be worth
about $2.2 billion on elf’s multiple. The AI sheen might give it
an additional glow.
    The risk is that, unlike elf, Oddity only sells online just
as makeup buyers are heading back to brick-and-mortar stores,
according to research outfit 1010Data. Regardless of the trend,
if Oddity’s technology shows staying power, its deep-pocketed
rivals are likely to copy it. More likely is that once the AI
buzz dies down, the company’s valuation will be stripped back to
a more natural look.   
    Follow @AnitaRamaswamy on Twitter
    
    
    CONTEXT NEWS
    Oddity Tech, the parent company of beauty brands Il Makiage
and Spoiled Child, submitted documents to regulators for an
initial public offering on the Nasdaq stock exchange on June 23.
    Goldman Sachs, Morgan Stanley and Allen & Co. are listed as
the lead underwriters.

 (Editing by Jeffrey Goldfarb and Sharon Lam)
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