Direct to consumer: Oddity is an exception to the Allbirds lesson

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Back in the 2010s, canny marketing gave a leg-up to brands selling “direct to consumer” via the internet. Footwear group Allbirds and mattress seller Casper claimed to sit at the intersection of tech and retailing. High cash burns floored valuations previously running into billions. But online beauty retailer Oddity Tech proves the DTC model still has merit. 

The Israeli-founded company, last valued at $1.5bn, has filed for an initial public offering in the US. Ignore Oddity’s headline-grabbing “AI investments” and the fact that it raised money via a digital token last year. The group’s appeal lies in the profitability of its high-margin beauty products, not tech R&D. 

Companies such as Allbirds aped the tech start-up model of spending heavily to acquire customers. But they lacked the network effect that might eventually lower costs to produce profits. To boost sales they expanded into physical stores and distribution partnerships. Meanwhile, traditional retail rivals increased digital sales. 

Allbirds shares are down 91 per cent from the listing price. Revenue is expected to drop by almost a fifth in the current quarter compared with last year. With $143mn in cash left on the balance sheet, the lossmaking company has about 18 months to break even. 

Oddity follows the DTC model of spending heavily on advertising to build an online following on social media apps. When Allbirds went public, marketing was equal to 25 per cent of revenue. Oddity’s is 28 per cent.

The difference is that Oddity sells high-priced goods. Its 71 per cent gross margin in the past quarter exceeds that of California’s listed make-up company Elf Beauty, whose share price more than doubled this year.

Valued on the same trailing sales multiple as fellow DTC company Allbirds when it listed, Oddity would be worth $3.2bn. On the same earnings multiple as Elf, it would reach $3.6bn.

Oddity, as its name suggests, should do well in the current unwelcoming market for initial public offerings.

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