Direct to consumer: Oddity defies the Allbirds norm

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In the 2010s, brands that sold directly to consumers on the internet gained an advantage through clever marketing. Allbirds and Casper, for example, positioned themselves at the intersection of technology and retail. However, despite the billions in valuations, these companies suffered significant cash burns. Nevertheless, Oddity Tech, an online beauty retailer, has proven that the direct-to-consumer model still holds value.

Oddity Tech, an Israeli-founded company with a previous valuation of $1.5 billion, has filed for an initial public offering in the US. While their “AI investments” and their fundraising through digital tokens may be attention-grabbing, the true appeal of Oddity lies in the profitability of its high-margin beauty products, rather than its technological research and development.

Brands like Allbirds imitated the tech startup approach of heavy customer acquisition spending, but they lacked the network effect that could eventually lead to cost reduction and profitability. To boost sales, these companies expanded into physical stores and formed distribution partnerships. Meanwhile, traditional retail competitors increased their digital sales.

Allbirds’ shares have declined by 91% from its listing price, and its revenue is expected to decrease by nearly 20% in the current quarter compared to last year. With a remaining cash balance of $143 million, the company, which is currently operating at a loss, has approximately 18 months to achieve profitability.

Oddity follows the direct-to-consumer model by heavily investing in advertising to build an online following on social media platforms. At the time of going public, Allbirds’ marketing expenses accounted for 25% of its revenue, while Oddity’s is at 28%.

The key difference is that Oddity sells high-priced goods, and its gross margin of 71% in the previous quarter surpasses that of Elf Beauty, a listed makeup company based in California, whose share price has more than doubled this year.

If valued on the same trailing sales multiple as Allbirds when it went public, Oddity would be worth $3.2 billion. Alternatively, if valued on the same earnings multiple as Elf Beauty, Oddity would reach a valuation of $3.6 billion.

Given the current challenging market for initial public offerings, Oddity, true to its name, is expected to perform well.

Listen to Lex deputy editor Elaine Moore discuss the next era of social media with creators, companies, and critics on the FT’s new Tech Tonic podcast series.