Oddity Tech CFO talks IPO, AI tech to improve sales

Very exciting. I want to start with a little bit of a personal question because I'm fascinated by your journey here. You were at Goldman Sachs for many years, you were in the capital markets business there, so on the other side helping many companies go public, raise money, etc. What convinced you that this was the opportunity to jump for?

That's a great question because I wasn't looking to leave my job. I was at the height of a career that I really loved. I've always loved stocks, maybe similar to you, markets. I loved where I worked, but when I met our co-founder and CEO, David Dayan, and I saw the financial profile of his business, I knew immediately I'd never seen anything like it before. And this is in the midst of many other direct-to-consumer companies that had struggled, that were already reversing, and where a common theme from them was that the unit economics just don't work. Maybe the internet's a lot smaller than we think it is and there's real saturation. But when I saw what his team had built with very little capital raised to do it and in such a short period of time, I had never seen anything scale as rapidly or as profitably. And then spending a little more time, I was blown away with how hard and fast the team was running. I mean, the global beauty and wellness market is huge. I've always thought it was a super high-quality place. You've got amazing businesses that always traded at great multiples that investors really loved, that dominated that category. But to find something with a technology engine strapped to it that was disrupting it, and how quickly the team was running at those opportunities, really blew me away. So while it was a hard decision, I wasn't planning on leaving, it ultimately was a no-brainer.

So we're unlocking online for what we believe is one of the most attractive and lucrative TAMs on the planet. It's this big, massive global beauty and wellness market, so many attractive categories, so many attractive demand pools, but had really been behind the curve in online adoption and really in technology investment. That was the opportunity that our founders saw. They invested early and aggressively into transformational technology like AI, like computer vision. And by harnessing the power of those technology tools and the data from our users, they were really able to tap into a model that unlocked online for the first time. Whereas I think incumbents were under the impression that the underpenetration of online in the category was a function of the consumer not wanting it, the consumer preferring a store. Ultimately, what we have been able to prove out is that it's not that she doesn't want it, it's that she never had the ability, the means, the platform that would enable online adoption. And now that we've actually put this out there, the pent-up demand from consumers, the speed at which they're adopting our products, our platform, the speed at which Il Makiage has grown, the speed at which Spoiled Child has grown, even though it's just about a year old, a little over a year old, incredible pace of growth shows you that it was really more of an enabling obstacle rather than a desire. And so for us, because we've tapped into that, we're able to grow in a way that's very rapid, at the same time quite profitable. You mentioned our margins, also our cash generation. We converted well over 60% of our earnings into free cash flow last year. We exited the second quarter with over $100 million of cash on our balance sheet. That's cash that we made through earnings, not raised externally. And so it's been a really powerful model as a result.

We're still clearly early in the curve of online adoption, but if you look at other international markets, for example, in China, you can see the penetration rates are so much higher and actually approaching that 50% level already. Now, with the advent of our type of model and other models that may develop in the future where you're using further technology enablement, so in our case AI and computer vision, you're just breaking down all the barriers, all the frictional elements that would keep somebody from transacting online. You're actually breaking down those barriers, and so the pace of online adoption could be much more significant than what some of those preliminary estimates were. I think the final thing I will say is that the speed at which we're seeing people come to our sites, that we're seeing them come into our brands, is a really strong reflection of that pent-up demand that gives us optimism of that adoption in the future.

Well, look, for a business like ours that is competing in what we believe is the most attractive channel for online of an expansive global market, one of our key areas to get right is prioritization because there's so many different ways to grow for us. Number one, we've talked about the opportunity set in our existing portfolio of brands, whether it's Il Makiage, Spoiled Child, even just growing the core of what they have today. But on top of that, new product categories, new markets that we know we can expand into. We've made great strides in computer vision that we're rolling out into Il Makiage, for example.

So one of the key reasons why the category has been underpenetrated online is that the consumer needs help. She doesn't know what she wants, she doesn't know what she needs. She walks into a Sephora, she walks into a beauty store, there's so many things that she can choose, different shades, tones, undertones, skin conditions. There's a salesperson, a sales associate there to help her, there's a sales associate there to show her how to use it. That doesn't happen online when you're just dropped into a website catalog. So one of our core innovations, product matching, recommendation engines, and then helping the user understand exactly how to use the product to make it right for them. And so up to this point, we've built that with products like Power Match, maybe you've seen that as one of our big consumer-facing AI engines and shade recommendation. Power Match, which will deliver the perfect shade for you as an example. We've done that based on data and AI alone. We're now rolling out those vision capabilities to unlock even better matching than what we have today. And so I think that's one, just going back to the question, where's our priorities for growth? There is so much more that we can do in the core, but on top of that, we're building many, many more engines for the future. So I talked to you not that long ago about Oddity Labs and what we're building using AI-based molecule discovery to find the next generation of science-backed, high-performing products to solve consumer pain points. We've got new brands that we will bolt on to our existing platform. We know those brands are satisfying very real needs that users have because they tell us. We've got skin conditions, we've got acne, we've got other concerns. So brands three and brands four that are independent teams but use our shared technology stack and our shared information that we know about our users to deliver great outcomes.

Thanks. Thanks for having me.