Inflation And Privacy Laws Will Hurt AI But Enable Adaptation

Key Takeaways

• Stricter privacy laws, rising costs, and shifting consumer sentiment threaten Oddity Tech's AI-powered model, potentially reducing margins and hindering growth.
  
• Increased investment needs, regulatory risks, and intensifying competition challenge Oddity's ability to profitably expand and defend its digital-only business.
  
• Advanced AI-driven personalization, global expansion, new brand launches, and proprietary R&D position Oddity Tech for sustained growth, improved margins, and industry leadership.

Catalysts

Operates as a consumer tech company that builds digital-first brands for the beauty and wellness industries in the United States and internationally.

• Stricter privacy regulations and rising consumer concerns about the handling of personal health and biometric data threaten to undermine Oddity Tech's core model of AI-driven personalization, which could reduce conversion rates, elevate customer acquisition costs, and erode the company's competitive advantage, ultimately putting sustained revenue and margin growth at risk.
  
• Mounting inflationary pressures and stagnating global real wages may dampen discretionary spending on beauty and wellness products, directly challenging Oddity's growth expectations, especially as their international expansion ramps investment ahead of uncertain consumer demand, likely weakening top-line growth and profitability.
  
• Oddity's escalating reliance on heavy investment in proprietary technology and direct-to-consumer infrastructure leaves it increasingly vulnerable to rapidly rising online customer acquisition costs, diminishing operating leverage and resulting in thinner net margins, particularly if they fail to outpace digitally enabled incumbents.
  
• With new product launches such as Brand 3 and Brand 4 targeting highly regulated health and medical-grade categories, Oddity faces higher risks of increased compliance costs and operational complexity; failure to meet evolving regulatory standards or manage pharmacy partnerships could cause delays, legal exposure, or stunted revenue contribution from these initiatives.
  
• Consolidation among large beauty product companies could intensify competitive pressures, making it harder for Oddity's relatively concentrated and digital-only portfolio to defend market share or maintain premium pricing, threatening its long-term revenue trajectory and pressuring earnings growth.

Oddity Tech Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Oddity Tech compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Oddity Tech's revenue will grow by 17.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 14.6% today to 14.9% in 3 years time.
• The bearish analysts expect earnings to reach $183.9 million (and earnings per share of $2.76) by about August 2028, up from $110.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, down from 29.5x today. This future PE is greater than the current PE for the US Personal Products industry at 19.4x.
• Analysts expect the number of shares outstanding to decline by 1.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.5%, as per the Simply Wall St company report.

Oddity Tech Future Earnings Per Share Growth

Risks

• Oddity Tech's heavy investment in proprietary AI-driven personalization and diagnostic capabilities aligns with the long-term rise of AI and data-driven personalization, which could result in higher conversion rates and stronger customer retention, ultimately driving long-term revenue growth and improving earnings quality.
  
• The company's accelerating international expansion, including successful early results in the UK, Australia, Germany, and emerging test markets such as France, Italy, and Spain, opens significant new addressable markets and offers meaningful revenue upside, which may offset stagnation in other geographies and underpin sustained top line growth.
  
• A strong focus on launching new brands, such as Brand 3 in medical-grade dermatology and Brand 4 in 2026, along with continued scaling of existing brands like IL MAKIAGE and SpoiledChild, provides ongoing portfolio diversification and new recurring revenue streams, which can help smooth earnings and expand gross margins over time.
  
• Oddity's ability to consistently achieve and even surpass its guidance on revenue, gross margin, and free cash flow for nine consecutive quarters since IPO demonstrates execution strength; this track record, supported by high free cash conversion and disciplined capital allocation, provides financial resilience and supports stable or rising net margins.
  
• The company's investments in ODDITY Labs and proprietary molecule development, combined with the secular shift toward clean beauty and ingredient transparency, position it to benefit from evolving consumer trends and science-based product differentiation, which could attract premium pricing and provide competitive gross margin advantages as the industry evolves.

Valuation

• The assumed bearish price target for Oddity Tech is $55.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Oddity Tech's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $55.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $183.9 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $58.22, the bearish analyst price target of $55.0 is 5.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.