ODDITY Tech’s $810M record year is overshadowed by an ad algorithm crisis

ODDITY Tech Ltd. (NASDAQ: ODD) reported report full-year income of $810 million on February 25, 2026, a 25% improve over 2024, capping what co-founder and CEO Oran Holtzman described as a powerful 12 months for the corporate. But the headline numbers have been virtually instantly overshadowed by a disclosure that shook the efficiency advertising and marketing world: a extreme and beforehand undisclosed dislocation in person acquisition prices attributable to what the corporate believes are algorithm modifications at its largest promoting accomplice.

The inventory fell 43.49% in pre-market buying and selling on February 25, dropping to $16.40 per share from a earlier shut of round $29. It didn’t get better. By February 27, shares closed at $11.77, down an additional 14.49% that session alone, with quantity of 5,539,671 – greater than 3 times the common each day quantity of 1,608,760. In after-hours buying and selling that night, the inventory fell an extra 1.69% to $11.57. The one-month chart tells the complete story: ODD has misplaced 66.10% of its worth since late January. From its 52-week excessive of $79.18, the inventory has declined over 85%. Market capitalization stood at roughly $676 million intraday on February 28, down from values above $4 billion earlier within the firm’s public life. The PE ratio (TTM) sits at 6.54, and the consensus 1-year goal estimate amongst analysts is $18.22 – nonetheless above the present value, however a determine that carries little weight given the suspension of ahead steerage. The following earnings date is estimated for April 28, 2026.

The distinction between monetary achievement and operational disaster might hardly be sharper. Fourth-quarter internet income got here in at $153 million, up 24% year-over-year and above the corporate’s personal steerage vary of $149 million to $152 million. Full-year adjusted EBITDA reached $163 million, representing a 20.2% margin, exactly in step with the corporate’s acknowledged long-term earnings goal of 20%. Adjusted diluted earnings per share for the complete 12 months landed at $2.21, properly above the steerage vary of $2.10 to $2.12. These should not the numbers of a enterprise in structural misery. However the steerage – or reasonably, the absence of it – instructed a distinct story solely.

In line with the corporate’s ready remarks, ODDITY has suspended its full-year 2026 monetary outlook. International CFO Lindsay Drucker Mann acknowledged the corporate expects first-quarter 2026 income to say no roughly 30% year-over-year on account of diminished acquisition income. Second-quarter gross sales are additionally prone to decline, although the magnitude stays unknown. Full-year steerage will solely be issued “within the subsequent few months when we’ve extra visibility,” in line with Drucker Mann.

The algorithm drawback

The technical roots of the issue are particular and strange. In line with Holtzman, the corporate makes use of a Attempt Earlier than You Purchase (TBYB) mannequin – a consumer-friendly buy mechanism that enables prospects to trial merchandise earlier than being charged, intently replicating the in-store expertise at retailers like Sephora. The corporate believes this mannequin, uncommon in magnificence e-commerce on account of its operational complexity, interacts poorly with current modifications in its promoting platform’s public sale algorithm.

“We imagine the algorithm replace impacts how this platform interprets and weights the indicators related to Attempt Earlier than You Purchase mannequin, primarily on account of its inherent increased return charges, and diverted us to decrease high quality auctions at abnormally excessive prices, disconnected from the market,” Holtzman stated in his ready remarks on February 25. The issue was first noticed within the second half of 2025 however accelerated sharply as the corporate started scaling acquisition exercise coming into 2026. The basis trigger was solely recognized in late January.

Each IL MAKIAGE and SpoiledChild seem to have been affected, although the affect on IL MAKIAGE was extra extreme, presumably due to its bigger scale. In line with Drucker Mann, orders instantly attributed to this promoting accomplice symbolize just below 1 / 4 of ODDITY’s income utilizing the corporate’s inside attribution system – however the knock-on impact extends additional. The corporate’s cost-per-acquisition (CPA) in some instances ran greater than 2x above regular market ranges. At these charges, the corporate stated it was not worthwhile on a first-order foundation. It remained worthwhile on a 12-month direct contribution margin foundation due to its sturdy repeat income charges, however the near-term EBITDA stress is materials.

The issue is compounding throughout time. Q1 and Q2 are traditionally ODDITY’s largest intervals of person acquisition. From that acquisition, the corporate usually generates vital repeat income over the remainder of the 12 months. Disrupted acquisition within the first half subsequently compresses repeat income within the second half, even when the CPA normalizes on schedule. Roughly 70% of ODDITY’s 2025 income got here from repeat gross sales, and 12-month internet income repeat charges for the 2024 cohort of first purchasers remained over 100% – each figures that display the well being of the enterprise beneath regular circumstances, and each figures that make the acquisition disruption extra consequential, not much less.

Remediation actions are underway. In line with the ready remarks, the corporate has carried out modifications throughout mannequin infrastructure, provide changes, sign auditing, funnel UI and UX modifications, and new viewers methods. Holtzman was express that the corporate is operating all of this in-house: “These level of time, when you have to make a number of modifications, we do all the pieces in-house. We’re not depending on third events, knowledge scientists, builders, media patrons, so we will run dozens of variants on the identical time.”

The corporate shouldn’t be abandoning the Attempt Earlier than You Purchase mannequin. Remediation is designed to cut back the mannequin’s down-weighting by the algorithm whereas preserving the power for purchasers to buy on a trial foundation. Holtzman added that the corporate might pivot solely to plain buy flows if wanted, for the reason that overwhelming majority of magnificence e-commerce operates that approach. However the choice is to repair the issue whereas retaining the mannequin intact. Significant progress is anticipated in Q2, with normalization anticipated in Q3 or This fall of 2026.

The market response

The velocity and scale of the inventory’s collapse displays how severely buyers penalized the mixture of a steerage suspension and an issue with out a clear decision timeline. Previous to the earnings announcement, in line with Investing.com knowledge referenced within the hooked up transcript, 75% of the 12 analysts protecting ODD had purchase scores on the inventory, with no promote suggestions. The divergence between analyst positioning and the eventual market response underscores how little visibility the funding neighborhood had into the operational drawback growing contained in the enterprise.

5 analysts revised their earnings estimates downward following the disclosure. Analyst value targets vary from $40 to $80, figures that bear restricted relationship to the place the inventory is now buying and selling. At a value of $11.77 at shut on February 27, ODD was buying and selling at a PE ratio of 6.54 – low relative to growth-stage shopper expertise corporations. The bid-ask unfold of $10.08 to $15.06 (all sides 200 shares) as of the screenshot taken on February 28 signifies skinny market depth and elevated uncertainty. The day’s buying and selling vary on February 27 ran from $11.61 to $14.05, a ramification of almost $2.50 inside a single session on a inventory priced beneath $15.

The corporate itself has signaled confidence in its present valuation. In line with the press launch, $103 million stays on a beforehand introduced $150 million share repurchase authorization, which expires June 30, 2027. Drucker Mann acknowledged explicitly that the corporate believes repurchasing its inventory is engaging at current costs and intends to opportunistically return money to shareholders by means of buybacks. That authorization, mixed with $776 million in whole money, short-term deposits, and marketable securities on the steadiness sheet, offers the corporate vital monetary flexibility by means of the disruption.

Trade context and the Mallazzo sign

The general public dialogue round this failure has been intense. On LinkedIn, Mike Mallazzo, who works in adverts and agentic commerce at PayPal, described the scenario on February 25 as “completely wild story in media / adverts that’s flying beneath the radar,” calling ODDITY “some of the subtle entrepreneurs within the sport.” His put up attracted vital commentary from senior trade observers. Mike Ryan, Head of Ecommerce Insights at Smarter Ecommerce, wrote that the incident “has Meta written throughout it,” including that the platform is “ridiculously buggy and has a historical past of grave overspend incidents.” In a follow-up remark, Ryan acknowledged instantly: “I’m joyful to be presumptuous lol. It was Meta.”

ODDITY didn’t publicly determine its largest promoting accomplice by title. The corporate’s description of an auction-based platform the place algorithm modifications led to irregular CPA inflation, mixed with analyst commentary through the Q&A session, factors strongly towards one of many two dominant platforms. Through the name, a Financial institution of America analyst referenced Google’s Andromeda system instantly when questioning the timing. Drucker Mann declined to call the platform.

Matthew Eitel, a VP of Progress Advertising and marketing with documented DTC expertise, added a sharper commentary on LinkedIn: “There’s nonetheless a narrative right here that is not being addressed. Oddity had a number of the finest efficiency entrepreneurs in DTC, they usually could not even work out what went improper for weeks. The public sale is rapidly sliding from human vs human to AI vs AI.” Rolf Djernaes, a contract digital advertising and marketing supervisor, added the sharpest abstract of all: “pMax and Benefit+. RIP.”

The broader debate about AI-driven automation in ad platforms has been constructing for months. As PPC Land has lined, Meta’s Benefit+ and Google’s Efficiency Max each function as largely opaque programs the place algorithmic decision-making replaces guide bidding controls. Meta’s AI automation has drawn sustained skepticism from advertisers regardless of the corporate’s efficiency claims – one incrementality examine discovered that Benefit+ generated solely 17% of the conversions Meta’s personal attribution reported. Meta’s Andromeda retrieval system, unveiled in December 2024, employs a neural community able to processing tens of thousands and thousands of advert candidates in actual time with a ten,000x improve in mannequin capability. Programs of this scale introduce unpredictable edge-case behaviors – precisely the issue ODDITY says it encountered.

Meta’s deprecation of legacy campaign APIs in favor of Advantage+ structures – a transition that reached a major milestone with Advertising and marketing API v24.0 in October 2025, and can full in Q1 2026 with v25.0 – reduces the granular management indicators advertisers beforehand relied upon to detect anomalies early. When one thing goes improper inside an AI-optimized public sale at scale, the indicators are tougher to learn. The industry has been grappling with exactly this type of black-box problem throughout programmatic channels. Transparency remains a persistent unresolved issue as AI eats extra of the media-buying course of, and as year-end 2025 algorithm volatility demonstrated, the implications of opaque programs should not summary.

The financials intimately

Setting apart the forward-looking disruption, ODDITY’s 2025 outcomes have been sturdy throughout each core metric. IL MAKIAGE grew income low double digits to roughly $560 million. Inside that model, the IL MAKIAGE SKIN sub-line – launched in 2022 – expanded from roughly 30% of name income in 2024 to roughly 40% by year-end 2025. SpoiledChild elevated income double digits to roughly $250 million – a notable achievement for an online-only model that launched 4 years in the past. METHODIQ, the third model and a medical telehealth platform centered on dermatology circumstances together with pimples, hyperpigmentation, and eczema, launched throughout This fall 2025 with what the corporate described as sturdy early indicators.

Worldwide income, the vast majority of which comes from IL MAKIAGE, grew 42% for the 12 months. Worldwide markets represented 17.5% of whole ODDITY internet income for 2025 – a determine the corporate acknowledged stays low in comparison with opponents that generate greater than 65% of internet gross sales internationally.

Gross margin for the complete 12 months was 72.7%, increasing 30 foundation factors year-over-year pushed by price efficiencies, regardless of a 50% improve in promoting prices. Promoting, basic and administrative bills for the complete 12 months reached $469.9 million, up from $352.7 million in 2024. Full-year internet earnings was $110.7 million in comparison with $101.5 million in 2024. Working earnings for the 12 months was $118.8 million versus $115.6 million in 2024.

On the steadiness sheet, money and money equivalents stood at $402.2 million as of December 31, 2025, up from $50.3 million at finish of 2024. Complete belongings reached $1.137 billion, in comparison with $438.9 million a 12 months earlier. A good portion of that development displays the profitable exchangeable notice providing that generated $582.5 million in internet proceeds throughout 2025 – the related legal responsibility seems as an Exchangeable Be aware of $584.4 million in long-term liabilities. The corporate spent $63.4 million on capped name transactions associated to that providing. Complete liabilities rose to $741.3 million from $156.6 million, although shareholders’ fairness remained optimistic at $396.5 million.

Free money circulation for the complete 12 months was $83.6 million, down from $134.5 million in 2024. Fourth-quarter free money circulation was adverse $5.9 million, impacted by roughly $19 million of elevated stock tied partially to METHODIQ inventory builds forward of the Q1 promoting interval. Inventories on the steadiness sheet grew to $135.2 million from $99.8 million.

On-line direct-to-consumer income accounted for 97% of full-year internet income at $782.1 million, up from 95% of a smaller base in 2024. ODDITY doesn’t promote by means of resellers or distributors. All on-line DTC revenues are generated by means of ILMAKIAGE.com, SpoiledChild.com, and METHODIQ.com instantly.

ODDITY Labs and the science platform

Separate from the promoting disaster, ODDITY continued investing in its proprietary ODDITY Labs molecule discovery platform, working from a biotechnology lab in Boston. The labs use AI brokers to map organic targets and buildings and have lately expanded into peptide analysis to enrich small molecule foundations. Work in translational biology – combining in silico and in vitro analysis with conventional organic strategies – is meant to enhance the predictive accuracy and velocity of latest molecule identification.

The corporate is engaged on organic targets together with pathways for lowering melanin manufacturing and boosting collagen and elastin, addressing industrial alternatives in pimples, hyperpigmentation, and getting older. In line with the ready remarks, ODDITY expects to have 8 merchandise in market throughout 2026 made with ODDITY Labs molecules. The METHODIQ pipeline is described as particularly lively, protecting pimples, eczema, and hyperpigmentation. Holtzman drew a direct hyperlink between the scientific platform and the corporate’s long-term aggressive positioning, arguing that ingredient innovation gives defensible product differentiation no matter promoting platform dynamics.

For efficiency entrepreneurs, the ODDITY case shouldn’t be merely a company-specific story. It is likely one of the clearest public examples but of how algorithmic public sale modifications at a dominant advert platform can create catastrophic, non-obvious, and slow-to-diagnose harm for even probably the most technically subtle advertisers.

ODDITY shouldn’t be a small firm studying digital promoting. With 68 million customers, over $800 million in income, greater than 2 billion knowledge factors, and a self-described in-house crew operating dozens of testing variants concurrently, the corporate represents the higher tier of DTC promoting sophistication. But an edge-case interplay between a novel buy mechanic, an algorithm replace, and public sale dynamics took months to determine and has resulted in a 30% income decline projection for Q1 2026 and a inventory value that has collapsed over 85% from its annual excessive.

Holtzman framed the basic problem plainly: “In a world of complicated on-line auctions, understanding the issue is all the time the toughest half.” The corporate grew from $25 million to $800 million in income over eight years whereas navigating a number of algorithm disruptions, together with iOS 14. Whether or not this disruption follows that sample – a tough adjustment adopted by restoration – or marks a extra everlasting shift in the price construction of DTC magnificence promoting is the query the market is now pricing in, at a inventory value that displays deep uncertainty.

Timeline

• 2022 – IL MAKIAGE SKIN launches; SpoiledChild model debuts
• February 25, 2025 – ODDITY information Annual Report on Type 20-F with the SEC
• April 2025 – ODDITY points first FY 2025 steerage: income development 22-23%, internet income $790-798 million
• August 2025 – ODDITY raises FY 2025 steerage to 23-24% development; algorithm volatility across ad platforms intensifies through year-end
• Second half 2025 – ODDITY first observes uncommon will increase in IL MAKIAGE person acquisition prices
• October 2025 – Meta deprecates legacy Advantage Shopping Campaign APIs, accelerating transition to completely automated Benefit+ buildings; Meta’s AI automation draws advertiser skepticism
• November 19, 2025 – ODDITY raises full-year outlook to 24-25%, internet income $806-809 million; discloses rising H2 person acquisition price challenges
• This fall 2025 – METHODIQ launches as ODDITY’s third model; acquisition price issues worsen as firm scales into Q1 2026
• Late January 2026 – ODDITY identifies root reason behind the acquisition price dislocation; begins remediation throughout mannequin infrastructure, sign changes, and provide technique
• January 2026 – ODDITY amends credit score amenities to increase borrowing capability to $350 million (undrawn)
• February 25, 2026 – ODDITY reviews This fall and full-year 2025 outcomes beating all steerage metrics; concurrently discloses Q1 2026 income anticipated to say no roughly 30%; suspends full-year 2026 steerage; inventory crashes 43.49% in pre-market to $16.40, intraday low $13.09, 52-week excessive $79.18
• February 27, 2026 – ODD closes at $11.77, down an additional 14.49% on quantity of 5.5 million shares (3.4x common); after-hours at $11.57; one-month decline reaches 66.10%; market cap roughly $676 million; PE ratio 6.54; 1-year analyst goal estimate $18.22; subsequent earnings estimated April 28, 2026

Abstract

Who: ODDITY Tech Ltd. (NASDAQ: ODD), a shopper expertise firm working IL MAKIAGE, SpoiledChild, and METHODIQ, serving roughly 68 million customers. Key figures embody co-founder and CEO Oran Holtzman and International CFO Lindsay Drucker Mann. Trade observers together with PayPal’s Mike Mallazzo and analysts from Financial institution of America, Jefferies, Truist, KeyBanc, Barclays, Evercore ISI, and Residents Financial institution participated in or commented on the occasions.

What: ODDITY reported report full-year 2025 outcomes – $810 million in income, $163 million adjusted EBITDA, $2.21 adjusted diluted EPS – whereas disclosing a extreme and ongoing disruption in person acquisition prices attributable to algorithm modifications at its largest promoting platform accomplice. The corporate suspended full-year 2026 steerage and projected a 30% income decline in Q1 2026. The inventory fell 43.49% on February 25, continued declining to $11.77 by February 27 shut, and has misplaced 66.10% of its worth over one month and over 85% from its 52-week excessive of $79.18. The case has turn into a extensively mentioned sign within the efficiency advertising and marketing trade in regards to the dangers of opaque AI-driven public sale programs.

When: Full-year outcomes have been introduced on February 25, 2026, protecting fiscal 12 months ended December 31, 2025. The acquisition price drawback first appeared within the second half of 2025, considerably worsened coming into Q1 2026, and the foundation trigger was recognized in late January 2026. The inventory continued declining by means of February 27, 2026.

The place: ODDITY operates with headquarters in New York Metropolis, an R&D heart in Tel Aviv, Israel, and a biotechnology lab in Boston. The promoting disruption occurred throughout digital direct-to-consumer channels, which accounted for 97% of full-year 2025 internet income by way of ILMAKIAGE.com, SpoiledChild.com, and METHODIQ.com.

Why: ODDITY’s Attempt Earlier than You Purchase acquisition mannequin – uncommon in magnificence e-commerce – seems to have turn into an edge case inside its largest promoting platform’s up to date public sale algorithm. The algorithm’s interpretation of the mannequin’s inherently increased return charges seems to have diverted campaigns to lower-quality stock at abnormally excessive prices, in some instances greater than 2x above market benchmarks. The failure illustrates a structural transparency drawback in AI-automated promoting: when opaque programs change their public sale dynamics, even probably the most subtle advertisers can take months to diagnose the foundation trigger, by which level vital monetary harm has accrued.