Oddity Tech's stock tumbled 50% on Thursday after management said it expects first-quarter revenue to decline about 30% year-over-year as a result of elevated customer acquisition costs.
The company, which operates in the beauty and wellness technology sector, reported that it encountered disruption with its largest advertising partner. According to the firm, algorithm changes at that partner impaired its marketing efficiency and drove acquisition costs higher. Oddity Tech said it has identified the root cause of the problem and is forecasting that acquisition costs will return to more normal levels in the third and fourth quarters.
For the fourth quarter, the company posted revenue of $153 million, topping the analyst consensus of $151 million, according to data compiled by LSEG.
Management did not issue full-year guidance, citing the ongoing disruption resulting from the advertising partner's algorithm change. The company said the issue has materially affected its ability to acquire customers at historical cost levels during the first quarter, limiting visibility for the remainder of the year.
In response to the outlook and the uncertainty around customer acquisition costs, Jefferies downgraded Oddity Tech from Buy to Hold. In its commentary, Jefferies analysts said: "We downgrade ODD to Hold, given our belief that it will see NT pressure and trade sideways at trough levels until mgmt can regain their track record of delivering consistent earnings beats," adding, "Despite a solid Q4 (much better than expectations), an algorithm change at an advertising partner has caused significant disruption causing Q1 revs to trend down 30% Y/Y, holding mgmt back from guiding for this year. This lack of visibility limits NT upside to the stock."
Investors reacted sharply to the company's guidance caveat and the projected near-term revenue deterioration, pushing the share price down by half in a single session. The firm’s dependence on its largest advertising partner emerged as a central vulnerability for its customer acquisition model.
Oddity Tech framed the problem as an external disruption tied to an advertising algorithm change and communicated plans to normalize acquisition costs later in the year. While the prior quarter exceeded consensus, executives said they could not responsibly provide full-year guidance while the partner-related issue remains unresolved.
Summary
Oddity Tech warned Q1 revenue will decline about 30% year-over-year because of higher customer acquisition costs following algorithm changes at its largest advertising partner. The company beat Q4 revenue estimates with $153 million versus a $151 million consensus, but withheld annual guidance. Jefferies downgraded the stock to Hold, citing near-term pressure and limited upside until management restores consistent earnings outcomes.
Key points
- Oddity Tech forecasts Q1 revenue down approximately 30% Y/Y due to higher customer acquisition costs tied to an advertising partner.
- Q4 revenue of $153 million exceeded the $151 million consensus, data compiled by LSEG shows.
- Jefferies cut its rating to Hold from Buy, pointing to near-term pressure and lack of visibility that limits upside for the stock.
Risks and uncertainties
- Continued dependency on the company's largest advertising partner creates concentration risk for customer acquisition and marketing outcomes.
- Uncertainty over the timing of normalization in acquisition costs - the company expects improvement in Q3 and Q4, but provided no full-year guidance.
- Near-term revenue trajectory and limited visibility have prompted analyst downgrade, which may weigh on market sentiment for the company’s shares.