With the drought in IPOs on Wall Street, and perhaps because of it, it seems that investors have an appetite for flotations of profitable growth companies. An example is Israeli company Oddity Tech (Nasdaq: ODD), the parent company of cosmetics brand Il Makiage, which was floated on Nasdaq last week, after raising the share price range it sought in the offering. The eventual price was even higher than the revised range, and the existing shareholders expanded their offer for sale to meet the demand.
In its first three days of trading, the company’s share price has already risen by more than 50%. Oddity’s market cap has reached nearly $3 billion, up from a valuation of $2 billion in the IPO. This brings Oddity to a fantastic trailing p/e ratio on its profit in the twelve months to the end of March 2023.
Taking into account the number of shares after the offering, Oddity’s earnings per share in that period give a p/e ratio of 77. According to "The Wall Street Journal", the average p/e ratio of companies in the Dow Jones Index is currently 23.9. For the S&P 500 companies, the average is 20.4, and for the Nasdaq 100 it is 32.8.
It should be pointed out, however, that Oddity’s net profit in the first quarter of 2023 was $19 million, up 550% on the $3 million net profit in the corresponding quarter of 2022, so investors may well be pricing in the rise in the company’s rate of profit growth.
Most of the proceeds go to the controlling shareholders
Il Makiage started out as a chain of stores and a makeup school, but in 2013 it accumulated debts of tens of millions of shekels to employees, suppliers, and banks. Oran Holtzman, an accountant who was looking for interesting investments, paid NIS 12 million for the company, a purchase he financed with loans. He and his sister Shiran Holtzman-Erel, who is chief product officer, built a strategic plan for the company, turning it into a technology company, as it describes itself today.
According to company figures, 40% of its employees are on the technology side. Oddity says that its consumer technology platform is aimed at changing the global beauty market. Its prospectus states: "We deploy algorithms and machine learning models leveraging user data seeking to deliver a precise product match and seamless shopping experience… It requires marrying two different worlds of tech and physical products. It’s not enough to build smart machine learning models, they need to be trained to match physical products."
Only a small part of the money raised from the public in Oddity’s IPO went to the company ($61.4 million). Most of it went into the pockets of the controlling shareholders: the CEO, Oran Holtzman, sold shares to the tune of $211 million, while the L Catterton fund of luxury products company Louis Vuitton sold shares to the tune of $151 million.
The rise in Oddity Tech’s share price last week boosts the value of the shares remaining with the controlling shareholders: Holtzman has a stake worth more than $ 1 billion, while the current value of L Catterton’s stake is $730 million. In a previous deal, in early 2022, Holtzman and L Catterton sold shares for $130 million.
In its prospectus, Oddity states that since the launch of its digital brand in 2018, it has brought millions of consumers to buying beauty product online, and has changed their purchase experience. "We bring visitors to our website, turn them into users by asking questions and learning about them, and then leverage the data we have across the platform to convert them into paying customers," the prospectus states.
At the end of the first quarter of this year, the company had four million customers who had made at least one purchase in the past year.
The company also highlights the founding of Oddity Labs this year, based on the acquisition of Revela, a biotechnology company that focuses on developing new molecules for beauty and wellness.
In the last wave of IPOs, in 2021, many companies came to the market when they were not profitable, and so had no p/e ratio to present, and investors looked at their sales multiples. Since then, with the change in the macro-economic environment, investor preferences have changed substantially, and today, for most companies that don’t show a profit, the IPO window on Wall Street is shut.
Published by Globes, Israel business news - en.globes.co.il - on July 24, 2023.
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