Source: https://www.cosmeticsandtoiletries.com/research/consumers-market/article/22922396/digital-tech-in-beauty-ingredient-discovery-early-trend-spotting-personalization-digital-collabs-molecular-design-and-more

The Impact of AI on Personalized Beauty Products

As AI continues to advance, its influence is expanding across various industries, including personalized beauty. AI technology enables precise skin analysis, allowing individuals to select the most suitable beauty products without undergoing countless trial-and-error experiences. By analyzing factors such as skin type, tone, and concerns, AI recommends the optimal customized beauty products tailored to individual needs.

While this industry is still in its early stages, AI-driven beauty recommendations are just the beginning. With ongoing technological advancements, the premium market may soon see AI-powered formulations that create one-of-a-kind personalized beauty products.

The Growth of AI-Driven Beauty Market

Source : AI In Beauty And Cosmetics Market Report 2024 – AI In Beauty And Cosmetics Market Size And Share

With the rising demand for AI-powered personalized beauty solutions, the market is expected to grow at a compound annual growth rate (CAGR) of 19.5%. Many companies are already entering the AI beauty sector, leading to significant industry transformation. Among these, one company stands out for pioneering innovation in AI-driven beauty—Oddity Tech Ltd (NASDAQ: ODD).

1. Company Overview

Oddity Tech (ODD) is an innovative company leveraging AI and data analytics to provide personalized beauty solutions. Headquartered in New York, the company also operates a technology development center in Tel Aviv. Defining itself as a technology company, ODD aims to revolutionize all aspects of the beauty industry. Notably, over 40% of its workforce belongs to the tech team, with substantial investments in data science, machine learning, and computer vision. ODD’s market capitalization currently stands at $2.4 billion.

2. Key Brands

A. IL MAKIAGE: Beauty and Makeup Brand

Launched in the U.S. in 2018, IL MAKIAGE is a prestige beauty brand with a strong focus on technology.

a. Key Features

(1) Tech-Driven Approach: AI and machine learning match users with suitable beauty and skincare products.

(2) Global Expansion:

• • 2020: Entered the UK and Germany
  • 2021: Expanded to Australia
  • 2022: Launched in Ireland, France, Denmark, and Sweden

(3) Innovative Product Matching:

• • PowerMatch algorithm is backed by research on over 700 skin tones.
  • Online quizzes help consumers find the perfect foundation and concealer shade.
  • ‘Try Before You Buy’ strategy allows customers to test products before purchasing.
  • IL MAKIAGE website features a quiz that evaluates skin type and tone, offering tailored product recommendations and details on the trial program.

2. Key Products

• Woke Up Like This Foundation
• F*ck I’m Flawless Concealer
• Icon Mascara
• Color Boss Squad Eyeshadow Palette
• Black Card Liquid Eyeliner

Source: IL MAKIAGE homepage
You can use the QUIZ feature on the IL MAKIAGE website. After completing the QUIZ, you will receive product recommendations.

B. SpoiledChild: Hair and Skincare Brand

Launched in February 2022, SpoiledChild is ODD’s second brand, focusing on skincare, anti-aging, and hair care.

a. Key Features

• AI-Powered Technology: AI and machine learning personalize product recommendations.
• SpoiledBrain: An adaptive machine-learning bot analyzes beauty surveys to offer individualized product suggestions.
• Innovative Packaging: Products come in futuristic capsule designs, utilizing sustainable and reusable packaging materials.

b. Key Products

• Anti-aging treatments
• Collagen products
• Haircare solutions
• Others: Apple cider vinegar & probiotics, eye creams, and more

3. Financial Performance

A. Q4 2024 Financial Results

• Net Revenue: $124 million (up 27% year-over-year)

• Gross Margin: 72.7% (up 330 bps)

• Adjusted EBITDA: $15 million (down 7.1% year-over-year)

• Adjusted Diluted EPS: $0.20 (up 18% year-over-year)

B. Full-Year 2024 Financial Results

• Net Revenue: $647 million (up 27% year-over-year)

• Gross Margin: 72.4% (up 196 bps)

• Adjusted EBITDA: $150 million (up 40% year-over-year)

• Adjusted Diluted EPS: $1.96 (up over 50% year-over-year)

4. Competitive Advantages

The global beauty and wellness market is valued at approximately $600 billion. ODD operates a digital-first, vertically integrated, data-centric model that contrasts with traditional legacy models, which are primarily offline and wholesale-based.

A. Advanced AI and Data Technology

• AI-driven decision-making utilizing over 400,000 users and one billion data points.
• Machine learning and computer vision personalize recommendations.
• Hyperspectral vision technology (under development) aims to analyze skin and hair through smartphone cameras for future product innovations.

B. Integrated Technology Platform

• The company’s advanced platform integrates data science, machine learning, and computer vision.
• A team of over 80 engineers, data scientists, and computer vision experts supports its operations.

C. Kenzza Platform

• A patented in-house media platform that hosts one of the largest personalized beauty content libraries.
• Connects users with influencer communities for customized recommendations and reviews, enabling an organic, cost-efficient customer acquisition strategy.

• Left: IL MAKIAGE Creator

• Right: SPOILEDCHILD Creator

5. Risk Factors

A. Economic Risks

• Potential decline in premium beauty purchases during economic downturns.
• Fluctuations in raw material costs impacting profitability.

B. Technology and Security Risks

• Rapid advancements in AI and machine learning could lead to technology gaps.
• Data breaches and cybersecurity threats.

C. International Expansion Risks

• Geopolitical uncertainties and currency fluctuations.
• Adapting to diverse regulatory environments and consumer preferences.

D. Competitive Risks

• Intensifying competition in the beauty and wellness industry.
• Digital transformation efforts by new and existing market players.

E. Growth-Related Risks

• Challenges in managing rapid expansion effectively.
• Potential failures in launching new brands or products.

6. Future Vision & Outlook

A. Technological Innovation & Investment

• ODDITY Labs:Develops new skincare molecules, peptides, and probiotics using AI, similar to pharmaceutical R&D.
• AI & Data Utilization: Enhances product-matching accuracy and reduces return rates through continuous investments in machine learning and computer vision.
• Generative AI: Plans to introduce AI-driven personalized diagnostic platforms for Brand 3 (expected in 2025).

Source : ODD presentaion
The number of developed substances has been decreasing year by year.
Recently, there has been almost no development of new ingredients related to hair and skin.

B. Product Diversification & New Brand Launches

• Upcoming Brands:

  • Brand 3 (H2 2025): Medical-grade skin and body care

  • Brand 4: A private label brand targeting existing customers

• Skincare Market Expansion: Expected to contribute 25% of total revenue in 2024.

Source : ODD presentaion

C. International Market Expansion

• Currently, 20% of ODD’s revenue comes from international markets (UK, Australia, Canada, etc.).
• Plans to strengthen global market presence for diversified revenue streams.

D. Customer-Centric Strategy

• High customer loyalty drives revenue growth.
• Increasing repeat purchase rates confirm strong customer retention.
• Analysis of purchasing patterns across 12-month, 24-month, and 36-month cohorts supports long-term growth.

Source : ODd presentaion

• Left: The 12-month repeat purchase rate by quarter is increasing.

• Right: Purchase patterns by cohort are analyzed in 12-month, 24-month, and 36-month intervals.

7. Two-Minute Pitch

Oddity Tech (ODD) is revolutionizing the beauty industry by leveraging AI and data analytics to deliver personalized beauty solutions. With over 40% of its workforce dedicated to technology, the company invests heavily in data science, machine learning, and computer vision to redefine beauty.

ODD’s leading brands, IL MAKIAGE and SpoiledChild, offer AI-powered product matching, driving strong financial growth. The company’s proprietary Kenzza platform enhances customer engagement and acquisition through influencer-driven recommendations.

Despite economic, technological, and competitive risks, ODD remains focused on innovation, product expansion, and global market growth. With a commitment to cutting-edge AI technology and customer-centric strategies, ODD is poised for sustained success in the beauty industry.