Oddity's Q4 Beat Masks Deepening Margin Pressure and Ominous Growth Slowdown

What happened

Oddity Tech reported Q4 earnings that beat estimates with 23.5% sales growth, extending its streak of strong top-line performance as highlighted in the DeepValue report. However, margins narrowed due to heavy investments in Methodiq and international expansion, underscoring rising cost pressures that threaten the 20% EBITDA margin algorithm central to the investment thesis. Alarmingly, management forecasts a 30% decrease in Q1 revenue, a stark departure from the sustained ~20% growth narrative and signaling potential demand weakness or execution missteps. This development echoes the Bear scenario in the DeepValue report, where slower growth and margin compression could drive valuation toward $28 per share. The combination of margin squeeze and revenue decline challenges the core premise that Oddity's data-driven engine can maintain superior unit economics amid escalating digital ad costs and new venture scaling.

Implication

The 30% Q1 revenue decline is a critical red flag that contradicts Oddity's historical growth trajectory and may indicate deeper issues in demand or operational execution, potentially eroding investor confidence. Margin compression despite revenue growth suggests that investments in Methodiq and international markets are not yet yielding efficiency gains, jeopardizing the 20% EBITDA margin target and aligning with the Bear scenario's lower valuation. This reinforces the need to watch for rising marketing expenses and repeat metrics, as highlighted in the DeepValue report's early warning indicators, to gauge if unit economics are deteriorating. Upcoming 2026 guidance will be pivotal; if management steps down growth or margin expectations, it could trigger a re-rating toward the bear case implied value of $28. With the stock already derated, further declines are likely if the company fails to demonstrate a credible path back to its growth algorithm, emphasizing the importance of position sizing and risk management.

Thesis delta

The investment thesis that Oddity can sustain ~20% revenue growth with ~20% EBITDA margins is now under significant pressure due to margin narrowing and a sharp Q1 revenue decline. This shifts the outlook toward the Bear scenario, where slower growth and compressed margins could lead to valuation multiple contraction, requiring a more cautious stance and closer scrutiny of marketing efficiency and repeat behavior in the next earnings cycles.