Oddity Tech (ODD) Q4 2024 Earnings Call Transcript

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Oddity Tech (NASDAQ: ODD)
Q4 2024 Earnings Call
Feb 26, 2025, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to Oddity's fourth-quarter and full-year 2024 earnings conference call. Today's call is being recorded [Operator instructions] At this time, I would like to turn the conference over to Maria Lycouris, investor relations for Oddity. Thank you.

You may begin.

Maria Lycouris -- Investor Relations

Thank you, operator. I'm joined by Oran Holtzman, Oddity co-founder and CEO; Niv Price, Oddity's CTO; and Lindsay Drucker Mann, Oddity's Global CFO. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about Oddity's business strategy, market opportunity, future financial performance, and potential long-term success.

Forward-looking statements involve risks and uncertainties and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued yesterday and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements, which speak only as of today. Finally, during this call, we will discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business.

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Additional information about these non-GAAP financial measures, including their definitions are included in our earnings press release, which we issued yesterday. I'll now hand the call over to Oran.

Oran Holtzman -- Co-Founder and Chief Executive Officer

Thanks, everyone, for joining our call today. 2024 was another strong year for us, both for financial achievements but even more importantly for the investments we've made to drive our business in the future. As I tell my teams, our success today is because the hard work we did two and three years ago. We are proud of it but it is in the past.

We must continue to work hard to investor day to ensure we keep winning. It is for this reason that I'm bullish about 2025 and beyond. Our business is very strong and we are developing more engines of growth than ever before, engines across Oddity's labs, new brands, and AI. So let's start with our 2024 performance.

In 2024, we grew revenue 27% to $647 million and delivered adjusted EBITDA of $150 million at a 23.3% margin, growing adjusted EBITDA 40% year over year. We generated $134 million of free cash flow, converting over 130% of our net income into cash. We again proved the power of online. We beat our earnings guidance every single quarter since going public and continuously raised our outlook on sales and profitability every single quarter, seven quarters in a row.

Both of our brands did great in 2024 each growing revenue double digits. Il Makiage crossed the $500 million revenue mark in 2024 and SpoiledChild recently crossed the $150 million mark for its third-best anniversary this month. We maintained strong and consistent momentum across the year, including our fourth quarter where we grew revenue by 27%. This momentum continued into 2025 where we had a great start for the first quarter growing across brands and product categories.

And given the importance of our first quarter, it puts us in a good position to once again meet our annual targets for revenue growth of 20% and adjusted EBITDA margin of 20%, which we are committed to during every year. One of the most important focused metric for us is repeat sales. Repeat is the best indicator we have of customer happiness and satisfaction and of our ability to sell new products into existing customers. And of course, repeat revenue is high margin for us and drives our strong profitability.

We are, therefore, pleased to have further strengthened our repeat sales in 2024 and increase it as a percentage of our business from 2023. This was driven by our strong 12-month revenue repeat rate of over 100%, a level that we believe is best-in-class across B2C. We are clearly an outlier versus other beauty companies that have reported weak demand and excess inventories. I want to explain why we are outperforming today and why we believe we will continue to do so in the future.

First, we are deliberately focused on the most attractive growth areas of the market. This includes the shift to online and increasing consumer demand for high-performance products. In our view, the move in recent quarters to online appears to be having more meaningful impact than in the past. There is too much product in too many physical points of distribution while online is growing at a strong pace of a larger base.

The global beauty industry is one of the most attractive markets in the world in our review, huge in size and highly profitable with so many areas to innovate and grow. I believe that incumbents have under-invested in technology and have been slow to adapt to a changing consumer. We can see how it is hearting their business today and create an opportunity for us as we continue to invest and strengthen our moat on those fronts. The second reason for our outperformance is our direct-to-consumer model, which is so many advantages of the wholesale brands.

And in a tough industry backdrop, those advantages really shine. We have a direct dialog with consumers without retail interference. We understand the performance of every product by platform, by end, by geography, by funnel every hour of the day. We doubled down on what is working and continuously optimized to make sure we never hit a wall.

Due to our B2C model, we have a very accurate read and strong planning. We have full control of our inventory, avoiding the excess inventory that wholesale brands are facing today, including all the discounting that comes along with it. Turning now to physical products. One of the greatest strengths at Oddity is our ability to develop high-performing products, launch them into our user base, and create newer franchises.

From the very beginning, we built a culture at Oddity that truly believes in product, product that solves our pain points and does it better than others, product that you love and wants to come back to. And this strength really shows in our numbers today. Starting with the original product portfolio we launched back in 2018, which continued to grow double digits. Based on industry data, we believe Il Makiage is the No.

1 foundation, the No. 1 primer, and the No. 2 concealer in the U.S. prestigeous dollar sales.

Our product innovations are growing even faster. A good example Il Makiage skin, which we launched in 2022 and as of 2024 represented around 30% of the brand revenue and it should continue to grow. SpoiledChild is another example, launched in 2022 and now makes up almost 25% of Oddity revenue to date and growing double digits. Part of our product innovation machine is our direct connection with the consumer that enable us to learn what she needs.

Another is our strict development protocols that require any product we launch to beat competitors in large-scale consumer trials. If it isn't perfect, we won't launch it even if it means we don't launch new products. What was recently added to our existing product strategy is Oddity Labs, our biotech lab in Boston that is a major investment for us. Over 60 scientists full time working on discovering and developing new molecules that have the potential to disrupt our old industry completely.

As I said before, I believe this will take time but can be a true game changer for us. I want to close with some thoughts on why we are bullish on 2025 and discuss some of the investments we are making for the future. Starting with the core business where we have incredible strength in both Il Makiage and SpoiledChild. Both had a great 2024 and are off to a strong start in 2025.

Il Makiage is already one of the largest prestigeous beauty brands by revenue in the United States after only six years in the market based on industry data and it is on track to reaching $1 billion of revenue by 2028. The color business continued to grow with great repeats. Skin is a massive opportunity. As I mentioned, it reached 30% of Il Makiage brand sales in 2024 and will continue to get even larger.

Remember that for most of our largest competitors skin business is twice the size of color. International is another major opportunity that we have slowed play throughout the years. We began slowly accelerating our growth outside of the U.S. in the first quarter of 2025, both by increasing scale in existing markets like U.K., Germany, and Australia as well as large scale testing in new markets.

So far, it looks good and we continue to believe international will grow to big numbers. SpoiledChild, we are also billing to be $1 billion brand. It has scaled at a healthy rate, passing the $150 million LTM revenue mark and doing it with strong repeat rates and AOV. It shows how much unmet demand there is for the brand.

We have begun testing international markets for SpoiledChild in 2025 with good indications and see big potential there. Another reason that makes us bullish about our future is our new brands. With every brand we push ourselves even more to not only disrupt the market but disrupt ourselves again and again. Brand 3 is a telehealth platform for consumers that will start with medical-grade skin and body issues like acne, eczema, and other pigmentation and then will expand to other health domains.

Our offering includes a comprehensive and innovative product range in access to prescription and Oddity treatments, enabling full personalization to user profiles, types, and severities. Individual treatment plans can be updated and adjusted to minimize side effects and increase efficacy. With Brand 3, we are building a user experience and product portfolio that we believe can change the game. We have built new capabilities for it, including specialized vision technology for assessment and a mobile app with a treatment life cycle coaching engine to encourage compliance with the treatment routine.

Brand 3 is on track to launch as scheduled in the second half of this year. We plan to soft launch in Q3 and then roll out official launch in Q4. Brand 4 is also a big opportunity that we're very excited about, more details on that front to come. Moving to Oddity Labs, where we are using pharma-grade technologies and AI-based molecule discovery to develop high efficacy sign back products for our industry.

Our mission at Oddity Labs is to bring real science to our industry at high scale for the first time and turbocharge distribution through Oddity's online platform. We continue to grow our team with new talent across bioengineering, computation, chemistry and delivery teams. Our scientist are actively developing both short and long-term innovation in skin, color, hair and body with a singular goal of exceeding the efficacy of existing products in these spaces. To achieve this, we are working on multiple parallel R&D strategies across each of our programs to increase the chances of success.

In the short term, we are working on preparing to launch new molecules for Brand 3 and Brand 4. Separate teams are working on longer-term development, ensuring we focus on both delivering short-term impact while investing in the future. This longer-term developments include our next generation of molecule delivery system, new modalities and new biological pathways to improve efficacy. Beyond our internal R&D, we are doubling our power by partnering with leading platforms to accelerate target and hit discovery using cutting-edge technology, including training an advanced human organoid models to identify new targets and predict molecules efficacy, AI-based platform that identifies new targets and generates predictions that modulate a given target based on genetic data and RNA sequencing and gen AI algorithms that develop new, highly effective complexes composed of natural ingredients.

Biology is just one part of the equation, effective delivery is essential to translating scientific breakthroughs into real world performance. We are investing in delivery systems, building internal capabilities and partnering with third parties to optimize how different compounds reach their targets. It is still early to know what will work as we are doing it for the first time. But I can assure you we push out 24/7 on multiple areas to increase the chances of success.

As I already said in previous calls, we don't need Oddity Labs to meet our financial targets but what we are building in labs is for total disruption. If we do it right, Oddity Labs will change our company and our industry forever. I fully believe it. Finally, a few words on our investment in tech before I hand it to our CTO, Niv Price.

Our big and early investments in tech are paying huge dividends for us today, allowing us to be ahead of our competitors in winning online. This is why we continue to double down on our investments in tech, talent and capabilities. This year, with the acquisition of Fionic's IP, we brought in-house an elite AI research team with the experience from Israel intelligence units. This team will focus on solving Oddity's high impact missions, enhance our current models and help us preserve our lead.

I will now hand it to Niv to talk through what we are building in tech in more details.

Niv Price -- Chief Technology Officer

Thanks, Oran. Indeed, we believe the Oddity platform today is the most advanced AI-based commercial engine in our industry and will continue to push our capabilities to new heights. Our technology moat allows us to deliver a better experience to customers than what is possible in its store. In order to do that, we need great data and the ability to hyperpersonalize user experience.

These are problems that machine models are especially well suited for and why we have, from an early stage, focused on building these capabilities. Let's start with product matching. The ability to understand each user and deliver them the perfect product match based on her needs. The vast majority of our first purchase revenue comes through one of our AI-based matching algorithm.

We're continuously improving this model in order to reduce returns and increase satisfaction and repeat. As one example, our latest version of Il Makiage PowerMatch, which we recently released is our best performing shade matching model ever. It's a multimodal architecture, training on both images and text and its reduced returns of our best selling shades by more than 10%. Turning to our user journey and how we personalize every experience to the individual in order to maximize conversion and LTV.

I'd like to think of these models as a virtual personalized store that is being built around our users as they walk through based on the information we gather about them. One example is a new model we introduced recently for SpoiledChild, targeting post purchase upsell. Instead of offering a random product after purchase or one pre-chosen by a human, we used machine models to make the decision. This drove a 30% plus improvement in upsell conversion and a 15% plus improvement in absolute AOV.

For Brand 3, we're taking product matching and hyperpersonalization to a new level with a full suite of AI models. These include severity assessments for different skin conditions as well as leisure classification and predictive view where we combine generative AI models with our unique data and algorithm in order to predict and show users at day one how they should expect to look like across their treatment journey all the way to clarity. These capabilities are critical to aligning expectations with users, increasing the satisfaction and compliance and reducing churn. Working closely with top dermatologists, we were able to show that our acne models have reached this year a level of accuracy that matches all beats that of a single dermatologist.

Breakthrough foundation models from OpenAI, Meta, Google and others have been a huge win for us. We can take these models, combine them with our unique data and algorithms and build new tools faster and way more efficiently than what was possible before. I'll give you an example in the acne domain. We'll start with the foundation model that knows how to identify circles, color and texture.

We then teach the foundation model, if you see a circular red bump that's lesion and teaching it means showing its many ground truth examples using our proprietary data of more than 10 million unique images from our users, which we believe is one of the largest data sets of this nature in the world. Then we do another final step of additional training with our data and boom, you have the domain expert. This approach has two important advantages. One, speed.

Since the starting point with that of a foundation model that knows the world quite well, turning it into an expert is faster than if you had to teach it from scratch. Two, quality. The results are usually better than if you started from scratch. But the precondition for this is you must have the data.

So for us, having the unique proprietary data, we can now move much faster, save on costs and get more accurate results. Turning to the platform. It's important to emphasize, especially as we are rolling out more and more brands. We're building Oddity technology with a modular and extensible design, which makes it usable across all brands and makes it plug-and-play for all new launches.

This allows us to be super-efficient in terms of time, resources and capital. These modular Oddity core libraries span across every assets of our platform, from user facing interactions like our funnels and checkout to video on demand with [Inaudible] to our computer vision diagnostics and tracking core capabilities, product recommendations, tons and tons of applications, which will be expensive to build separately but on our platform, we leverage these core libraries to drive speed, results and efficiency for each brand. With that, I will turn it over to our Global CFO. Lindsay?

Lindsey Drucker Mann -- Global Chief Financial Officer

Thanks, Niv. Let's turn to our Q4 results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Oddity delivered another record-breaking quarter to cap off a record-breaking year.

We grew net revenue by 27% in the quarter to $97 million. The strength was driven by both Il Makiage and SpoiledChild across a range of product categories. Net revenue growth was driven primarily by an increase in orders, while average order value increased 12% year over year. Average order value growth continues to be driven by mix, in particular, the increased proportion of Il Makiage skin, as well as higher items per order.

The 27% revenue growth we delivered this quarter beat our 22% to 24% guidance. The upside stands in contrast to the concerns we hear from investors about weakening sales trends in other beauty businesses, including both wholesalers and retailers. As Oran said, our results are a testament to the strength and resilience of our direct-to-consumer model and how we've positioned our business to win in the most important vectors of industry growth. Moving down the P&L.

Gross margin of 72.7% expanded 330 basis points year over year and exceeded our guidance of 68%. The delta versus our outlook was driven in part by product mix. We delivered adjusted EBITDA of $15 million in the quarter and adjusted EBITDA margin of 12.3%, above our guidance in absolute dollars and in margin percentage terms. Adjusted EBITDA margin compressed by 453 basis points as we incurred planned incremental expenses in the quarter to drive future growth initiatives, including Brand 3, Brand 4, and Oddity Labs.

We delivered adjusted diluted earnings per share of $0.20 compared to our guidance of between $0.11 and $0.13. Our adjusted EBITDA and EPS excludes approximately $8 million of share-based compensation. We continue to deliver very strong free cash flow and free cash conversion, a clear reflection of the strength and quality of our business model. We generated $134 million of free cash flow in 2024, an increase from the $85 million we generated in 2023.

In fact, our free cash as a percentage of revenue was 21% in 2024 and 17% in 2023 leading among other beauty companies based on reported results. We believe the strength in our cash flows is just one more indicator of our model's advantages relative to our competitors. We continue to put back cash to work and create value for our shareholders. During the full year 2024, we repurchased 3.6 million shares of our stock for approximately $147 million.

This includes 2.4 million shares repurchased in the fourth quarter via directed buyback of a portion of Catterton shares for approximately $100 million. We have $103 million remaining on our buyback authorization. We will stay opportunistic on share buybacks going forward based on our strong cash flows, ample cash reserves, and attractive share price. We exited the year with $169 million of cash equivalents and investments on our balance sheet and zero debt.

Turning to our outlook for 2025. Q1 is off to a strong start with good momentum in January and February. The size of the quarter combined with the high predictability of cohort repeat gives us good visibility to meet our long-term algorithm of 20% revenue growth and 20% adjusted EBITDA margins. Some specific drivers impacting our full-year P&L include, during 2025, we plan to incur incremental expenses associated with growth investments in Brand 3, 4, and Oddity Labs.

This is principally to cover costs associated with people, tech infrastructure, and product development. Even with these investments, we're firmly committed to delivering a 20% adjusted EBITDA margin for the full year and beyond. Brand 3 launch, as Oran said, we're on track for the second half of this year and continue to expect no material revenue contribution in 2025. Brand 4 will be ready for launch this year but we've decided to move it to early '26 to give more focus to Brand 3, more leadership focus, and more capital allocation to one brand versus splitting it in the same year for two brands.

This has no material impact on our '25 outlook as we are still incurring significant prelaunch expenses and have not contemplated any revenue contribution from Brand 4 in the year. Gross margin for the year is expected to be around 70% as our product mix normalizes, which we discussed in our last earnings call as well. We will also incur higher cost of goods expense this year for Brand 3, which will operate at a lower gross margin at launch than the company average. As we said before, we continue to see minimal impact on our business from changes in tariff policy.

Speaking with the topic of policy uncertainty, let me address TikTok. TikTok is one of many platforms that we use for acquisition and we have no overreliance on it. The expected impact to our business is TikTok ceases operating in the U.S. is not material.

Moving down the P&L. We expect adjusted EBITDA margin of 20% in line with our long-term algorithm. We continue to plan to reinvest any EBITDA dollar upside back into the business. Adjusted EPS of $1.94 to $1.98 assumes a blended tax rate of 20% and does not incorporate the potential benefit from additional share buybacks.

Turning to the first quarter outlook. We're off to an excellent start and are pleased with the composition of our growth across both brands and categories as well as our cohort repeat rates. We expect year-over-year net revenue growth in the quarter to be between 22% and 24%. You can find more details on our Q1 outlook in our press release.

And with that, I'll turn the call back to the operator for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Cory Carpenter with J.P. Morgan. Please proceed.

Cory Carpenter -- Analyst

OK. Good morning. Thanks for the questions. I had two.

Maybe one on international, Oran, I think you mentioned in the prepared remarks you're starting to push more in 1Q. So could you just go a little deeper on your strategy and kind of what you're doing on the international side and why now? And Lindsay, I think for you, just 1Q, I understand that's your highest customer acquisition quarter. So could you just talk about what you've seen in the first few months on the customer acquisition side in ROAs and payback on ad spend? Thank you.

Oran Holtzman -- Co-Founder and Chief Executive Officer

Hi. Good morning, Cory. As for international, the teams are working hard to accelerate international for many years, as you know. And what I wanted to achieve now is to show us that it is our decision when and how much we want to grow there.

I also decided it's important to spread the growth across more markets and structuring the teams already back in 2024 to allow for more growth internationally in 2025. So we began slowly accelerating the growth outside of the U.S. in the first quarter of this year, both by increasing scale in existing markets like U.K., Germany, and Australia as well as larger scale testing in new markets. So far, it looks very good as expected and we continue to believe international will grow to huge numbers for us.

As you know, it's a massive opportunity. Our competitors internationally is, I think, like two-thirds of their business. And we are building a truly localized experience for each international market we enter, which gives us strong performance from day one when we launch those new international markets. And this is like one of our biggest levers and we can use it whenever we want.

Like -- the reason that we pushed internationally, it's not because softness in the U.S.. I instructed the teams last year that I want to push more in 2025 and that's what we did as planned. And it's our decision how quickly we want to pace the growth in those new markets and to prioritize it. I hope it answered that question.

Lindsay?

Lindsey Drucker Mann -- Global Chief Financial Officer

Thanks, Cory. So Q1 is off to a great start as we mentioned in our prepared remarks. As you know, Q1 is a really important quarter for us. It's when we turn the engine back on for our acquisition.

And we exited the fourth quarter with really good momentum, nice performance across both brands. And multiple products, product categories, you heard Oran talk about skin now for 2024, reaching 30% of Il Makiage brand revenue, that's been a big highlight for us. Even as the color business continues to grow double digits and SpoiledChild has good momentum. So all of those things really carried forward for us in the first quarter.

In terms of ROAs, media gets more expensive every year. Consistently, we're able to offset it with all the very strong repeat rate that we have and that can, of course, Oran mentioned it for 2024, but it continued into the first quarter as well that where repeat is a larger portion of our business, which allows us to get a nice overall return on our ad spend.

Cory Carpenter -- Analyst

Thank you both.

Operator

Our next question is from Youssef Squali with Truist Securities. Please proceed.

Youssef Squali -- Analyst

All right. Thank you very much. Good morning, guys. So, Oran, I know you talked a little bit about this in your prepared remarks, but at a high level, in terms of your growth relative to peers.

Are you seeing any weakness or trade down across your consumer base from ongoing macro concerns? Looks like consumer confidence, at least in the U.S. continues to deteriorate. Do you think this business continues to perform well regardless of what -- how the macro does over, say, the next 12 months, 12 to 18 months? And then Lindsay on TikTok. Was TikTok impacted at all as a marketing channel for you guys by the brief shutdown in January? And if the platform does go away, what's the best substitute with comparable ROAs for you guys, is it Instagram, is it -- would love to just see if there is a substitute?

Oran Holtzman -- Co-Founder and Chief Executive Officer

Good morning, Youssef. I will take both. Let's start with the easy one. If TikTok is being shut down tomorrow, nothing happened to the business.

It isn't like we already saw it in one day and we are -- the fact that we do everything internally without agencies allow us to move very fast and to shift spend to other platforms and therefore, no impact. As for the markets, look, we said it before, the consumer is moving online. I said multiple times, I believe this is the case. I believe it will be more than 30%.

We know the challenges some of our competitors have and it's really not surprising us when you consider how much the consumer is moving online and how much their focus is going into brick-and-mortar with over 1,000 new points of distribution in just the couple of last years. We did see a lot of promotions from other brands in Q4, which was probably to drive demand. This isn't an issue for us, thankfully because we don't run the business this way. We are not participating in all these sales.

But for other brands, it can be very damaging as part of their consumers are conditioned to shop only during sales and promotion. And so it makes it very tricky for Q1 for them. Overall, it's like what we see out there now is a big opportunity for us because we believe this transformation is still in early days. Online penetration can double from where we are today.

And that's what keeps us very bullish about the future.

Youssef Squali -- Analyst

OK. Thanks, Oran.

Operator

Our next question is from Javier Escalante with Evercore ISI. Please proceed.

Javier Escalante -- Analyst

Oran, Lindsay, nice talking to you. My question has to do more on the consumer side. If you can expand on repeat purchases, which I understand you define it more as conversion within the same cohort. And perhaps if you have visibility on that with whether you can discuss Il Makiage in terms of which areas you see the strongest repeat within existing products, I believe, should be foundation, but this is my guess.

And how much of the Il Makiage growth is coming right now from consumer trial of the skin care extensions? Thank you.

Oran Holtzman -- Co-Founder and Chief Executive Officer

Good morning and I'll start with repeat. Unlike most D2C companies, we generate most of our revenue from repeat and this is although we grew over 25% so far this year. So this is why the business is still profitable. And repeat in '24 grew to more than 60% of the business revenue, way higher than 2023.

Again, this is although we grew over 25%, actually 27% in revenue. This is an important metric for us because it really shows how strong the satisfaction and happiness is. And if I dive deeper, our 12-month net revenue repeat rate is more than 100%, which we believe is among the best there is in D2C and this metric was less than 50% compared to more than 100% just a few years ago. We drive repeat by three main ways.

One is more repeat from the same product, foundation, concealer, hair, skin. Number two is expanding wallet share with new products. If I sold her a foundation of concealer before, now we are offering her skin product, which is a repeat. And number three, we are getting cross selling from Il Makiage to SpoiledChild in the future for new brands.

So this is the way that we view it. And repeat is very strong like the core that we see, we don't see any softness.

Javier Escalante -- Analyst

Oran, if I can squeeze a second one, if you don't mind. The strong growth in Q1 is certainly a star contrast with most traditional beauty companies. Could you talk about customer acquisition kind of like in growth rates, say, Q1 2024, I have these many millions of users and as of now, in Q1, I have this many more in the growth rate? If you can tell us how much of the 20% -- 23%, I believe, growth would be the midpoint of your guidance come from new users versus existing users buying again? Thank you.

Oran Holtzman -- Co-Founder and Chief Executive Officer

Then our biggest push in user acquisition is H1, like every year, Q1 is the biggest than Q2, then we slowed down because we don't want to grow more than that, and we enjoy the repeat. But it doesn't mean that we don't have a very strong repeat in Q1. If I had it, I wouldn't -- if I didn't have it, I wouldn't be able to lend on those EBITDA margins, because as you know, acquisition is not super profitable. So we are pushing and we are acquiring new users.

But at the same time, we are landing on a very healthy EBITDA margin, which is a testament of the strong repeat rate as part of revenue, although, we grew and the new user by acquisition. As for media, as Lindy said, in -- we continue to generate attractive returns on our marketing spending and again, you can see it by our strong margin that we forecast for Q1 and for 2025 full year. Q1 media is getting more expensive but as expected. But due to the super healthy repeat, as I mentioned before, it's being offset and we can see healthy margins.

Javier Escalante -- Analyst

Thank you very much.

Operator

Our next question is from Andrew Boone with Citizens. Please proceed.

Andrew Boone -- Analyst

Thanks so much for taking my questions. I'd love to understand the key product milestones as we think about Brand 3 coming to market later this year. What do you guys need to accomplish and kind of knockdown to set Brand 3 up for growth and for it to scale into '25 and '26? And then, Lindsay, just stepping back from a bigger picture perspective, as we do think about the P&L, and you guys are making significant investments across multiple growth vectors that really aren't contributing in '25 materially. How do we think about sizing those growth investments to better understand your inherent underlying profitability? Thanks so much.

Oran Holtzman -- Co-Founder and Chief Executive Officer

I will start with the second question. Of course, Lindsay, you can elaborate. We are, I would say, more than doubling our investments in Q1 versus Q1 last year around labs, Brand 3 and Brand 4. So when you think about the magnitude, just like to continue to grow.

And although we continue to grow, we still land on our margins that we are committed to. Brand 3 is a telehealth platform with medical-grade products. We are starting with skin and body issues like acne, eczema and other pigmentation and then we'll add additional health domains already in 2026 next year. I can't elaborate more for competitive reasons.

But for where we are today, we start with body and skin. We see this issue as huge pain points that impact a big portion of our user base and satisfaction with current solution is terrible, either in convenient visits to the doctor office or speaking an ineffective treatment blindly at a drugstore. This is a huge opportunity for Oddity. We would never launch it this year unless I had a very good read that we know how to win around those areas.

We tested a lot. We are building this brand for more than two years, and we are in a good position to launch it. We are developing Oddity's most personalized and most comprehensive line of product comprised of OTC and Rx products, all to be sold online other our own brands, most products formulated with existing ingredients on the market and some Oddity products will include exclusive ingredients from Oddity Labs. Two is, and we are building a first of a kind, as I mentioned on the call, mobile app experience to increase compliance and drive higher repeat comparing to the market today.

And three is leveraging the best thing of all, which is our platform, our user base and marketing to them and developing products to address their needs. As I mentioned on the call, soft launch Q3, official launch Q4. We are actively scaling the teams, which is a significant investment for Oddity. We completed developing the product line and branding.

And we set up the telehealth infrastructure to streamline user experience and support the delivery of our personalized treatment. And as Niv discussed, major breakthrough for us around vision. The numbers that I saw are very compelling in terms of diagnostics and matching, and I'm very excited to launch this brand.

Lindsey Drucker Mann -- Global Chief Financial Officer

Andrew, just to give you a little bit more perspective maybe on the amount of spend. I'll highlight two things for you. Number one, if you look at our profitability, first half of 2024, which was essentially just Il Makiage, SpoiledChild and then just beginning to ramp on our investments. We did have Oddity Labs, of course, in the base.

But there's a small -- there's some investments there but not as much as you saw for the full year in the back half of the year as we ramped in and what we're guiding 2025. You can get a sense looking at first half of '24 and how profitable the underlying businesses and remember '24 is our highest dollar level of marketing spend. And it's -- so we're at our largest scale and it's our lowest portion of repeat. So this is that profitable despite the fact that it's kind of in the -- it's a period where we actually are doing a lot of investment inherent in the D2C business.

So I think that's one factor. And the second thing that I would mention in terms of cost is we have had very material increase in investments in these growth initiatives. We talked about SpoiledChild being a brand that we spent $20 million upfront to launch. So Brand 3 is more involved for us than what Spoiledchild was but it gives you a bit of a sense of kind of what the upfront investment is that we've, of course, layered over a couple of years.

Oran Holtzman -- Co-Founder and Chief Executive Officer

I would just say like tens of millions in terms of investment this year. So we can't elaborate more but big investment for us across labs, Brand 3 and Brand 4.

Andrew Boone -- Analyst

That's very helpful. Thank you so much, guys.

Operator

Our next question is from Dara Mohsenian with Morgan Stanley. Please proceed.

Dara Mohsenian -- Analyst

Hey. Good morning. So maybe we can stick to Brand 3. I was just hoping to get a bit more specifics on the consumer need states you're targeting with Brand 3, the total addressable market that you see and maybe just a bit of an update to the extent you'd like to share on sort of effectiveness of the product so far in Brand 3, and your testing for those consumer need states versus the existing competing products that are out there?

Oran Holtzman -- Co-Founder and Chief Executive Officer

I think that I said but I will say it again, we start with acne, eczema, hyperpigmentation and body issues. As for trials, I won't say that we did close to 100 groups of trials like for the personalization and customization, we see numbers that are better than anything out there that we saw so far in terms of matching a satisfaction and truly like more than two years in the world just that part. So we wouldn't launch it unless we were very confident that we have strong offering. And just the magnitude we are launching like dozens of new products for Brand 3 after testing and it's a huge lift for us, but thank god the majority of the work is behind us and we are gearing up for launch.

Dara Mohsenian -- Analyst

And then on the Oddity Labs front, can you just give us an update on commercialization of products there in 2025, both on existing SKUs, some more upgrading existing products but also in terms of new products and molecule discovery? Obviously, Brand 3 and may be a piece of that, but how you see that developing in terms of new products going forward and commercializing some of that molecule discovery in 2025?

Oran Holtzman -- Co-Founder and Chief Executive Officer

It's still early with labs, not because we are not confident just because we are building something really meaningful there in terms of infrastructure and processes. The good news is that you will see new products coming from that for brand 3 and Brand 4, which is very short term. And in addition, we work very hard to build around, I want to say, more than 10 programs to launch more products from labs that will take a bit more time, because we want to ensure that we are not just launching for the sake of launching to make sure that we are launching for way higher efficacy than what exist in the market. We are scaling the teams.

We now have around 60 scientists there, building 200. We've built a lot of infrastructure needed to make it high scale commercial engine for us, including systems, processes and controls. We are constantly partnering with other platforms to help us accelerate target and heat discovery. In addition, we were working on biology and delivery systems to optimize hows different compounds can reach their target.

And as I mentioned, short term focus Brand 3, Brand 4. Long term is way broader than that. And again, for competitive reason, we are not sharing what exactly we work on the --. Lastly, we are constantly exploring M&A opportunities to strengthen Oddity Labs capabilities and looking for strong teams with advanced technologies, all new discoveries that are in line with our target space.

I hope it's helpful.

Dara Mohsenian -- Analyst

OK. Thanks.

Operator

Our next question is from Scott Schoenhaus with KeyBanc Capital Markets. Please proceed.

Scott Schoenhaus -- Analyst

Thanks, team for taking my questions. My first one is on Brand 3 launch in the telehealth platform. Lindsay, I think you mentioned that gross margins would be a little bit compressed versus your legacy brands here. Is that -- are you -- is that related to sort of the healthcare providers, the dermatologists that you have access to that will weigh on the gross margins? Just kind of wanted to drill into the workflows of this telehealth platform? And in dermatology, obviously, there's a shortage of dermatologists and there's a long wait time.

So there's a huge opportunity I feel like in this market segment for telehealth as well as diagnosis. And kind of want to work through the workflow platform with the telehealth versus the vision technology. Thanks.

Lindsey Drucker Mann -- Global Chief Financial Officer

Hey, Scott. Thanks. The gross margin comment is really specific to, as we've talked about for Brand 3, users will have access to both over the counter and prescription.The call out is really on the prescription side where there's higher cost of goods associated with doctor networks, compounding pharmacies and that kind of thing. That being said, even with a lower gross margin profile, this is a business where we expect to have great frequency and repeat.

And so as for all of our brands, we demand a threshold of contribution margin, EBITDA margin, and we're really, really, really excited about the unit economic profile and financial model for Brand 3.

Oran Holtzman -- Co-Founder and Chief Executive Officer

I would just add that we need infrastructure for doctor, just for the Rx part, which is going to be less than 50% of our offerings and everything is in place to meet our line for launch.

Scott Schoenhaus -- Analyst

Thanks, Oran and my follow-up, you just actually talked about Oddity Labs and you talked about M&A. So interesting perspective, here a question. How do you balance expanding your team at Oddity Labs organically versus M&A? I think you also mentioned you're partnering for target optimization as well. Can you just dive into that more, Oran?

Oran Holtzman -- Co-Founder and Chief Executive Officer

Yeah. Sure. So there is like a limitation of what we can do internally in terms of -- like I believe it's a race and we need to move really fast, and there is a limitation of capacity and resources. And in order to make sure that we can double our power, which we to get help from others and if we see something that is and very promising for pharma, we reach out to them and we check if we can -- they can help us developing something with us or certain areas that we don't have expertise in, and this is one example.

As for M&A, we acquired Revelo for the same reason and we're constantly looking for strong teams, mostly in pharma because there is -- like in our industry is not that common. And if we see a strong team, we will not hesitate to acquire them.

Scott Schoenhaus -- Analyst

Thank you.

Operator

Our next question is from Lorraine Hutchinson with Bank of America. Please proceed.

Lorraine Hutchinson -- Analyst

Thanks. Good morning. Can you talk about the products you've launched in 1Q at each of the brands, what you're excited about? And then what's in the pipeline for the next several months?

Lindsey Drucker Mann -- Global Chief Financial Officer

Hi, Lorraine. So, Oran talked about this a bit in his prepared remarks about how important product innovation has been for us. As always to continue to drive revenue, repeat and convert our users who had never found what they were looking for into customers. So it's important in order to drive that conversion from users to customers and then to convert customers into repeat customers.

And we can see the benefit of that based on, number one, just how much contribution we're getting to the business today from new product innovation. So skin is a great example. There was no skin -- SpoiledChild, there was no skin -- or SpoiledChild until 2022, and you can see how large those businesses have become. And then you can also see with our AOV up 12% in the quarter and it was up nicely all year.

We are getting, in that instance, a nice benefit from both the higher price points of those products but also the fact that people are adding more items to order, more items to order because they're finding more of what they want. It allows us to do a better job of upsell bundles and other things like that, which ultimately drive revenue. We do have some nice products in the pipeline for -- that we tested. We always before we launch anything we do a lot of testing to make sure that we feel really good about the product's ability to work.

Of course, we're always testing our products themselves, but even before the product efficacy just understanding ad sets and funnels and that kind of stuff. And so we've had some nice products that were tested in 2024. We have one product I'll highlight, Il Makiage, which is our neck cream that's going in Q1 '25, maybe I find that they target me often on my social platform. So maybe that's a hint for me personally on what I need.

But also we have liquid magnesium, we have some eye creams and other items. So it's about five for each brand this year for the full year across the year that will be -- and that's not even counting the really robust product set that we'll be launching with Brand 3.

Oran Holtzman -- Co-Founder and Chief Executive Officer

Like any other year, around five products from each brand have been launched.

Lorraine Hutchinson -- Analyst

Thank you.

Operator

Our next question is from Lauren Lieberman with Barclays. Please proceed.

Lauren Lieberman -- Analyst

Great. Thanks. Good morning guys. I was curious to talk a little bit about the consumer environment.

So obviously, I understand that you don't have any exposure to traditional retail and some of the inventory destocking dynamics that are going on, but you talk about how your consumer base is very broad across age cohorts, demographic cohort, socioeconomic cohort. And I was just curious if there's anything you are seeing from the consumer environment? Because we hear a lot about the kind of cautious consumer, things not getting worse but certainly not getting better, strength at the high end but kind of everyone, let's call it, low $100,000 of income, household income kind of struggling. So it's amazing how resilient your business has been. And so I was just curious if you could comment again on anything you're seeing or not seeing from a consumer environment? And if you're not seeing, why do you think that is? Thanks.

Lindsey Drucker Mann -- Global Chief Financial Officer

Thanks, Lauren. I guess, I'll take it. I mean, listen, we hear what other companies talk about, we certainly follow what our competitors are saying. You know as you've been covering this industry for a long time that beauty is a really resilient category in and out of economic cycles.

I suppose what's different about beauty this cycle is just the secular channel shift. And I know for many of the -- all the companies that I listen to, even if their businesses were challenged, they -- every single one of them called out online is a bright spot. And you can see from our business how strong the performance is. And of course, it feels like Amazon has hit a bit of a critical mass sort of roof where they're getting more great brands on their platform and you're seeing that benefit.

So I think it's -- you rightly point out that we have a very broad demo, broad across ages, broad across income as far as we can see, just based on the wide range of brands that people trade into us from. So from prestige beauty to masstige to mass, there's a lot of different customers that trade into us. And to us it's a reflection of the value that we deliver. What is it they say, price is what you pay, value is what you get.

A consumer is willing to pay significantly more for the same type of product because the product is great and because we're delivering them something that they just cannot get outside of the Oddity platform. So I think we're not necessarily the right place to look. We have a broad demo. We're really tiny in the midst of a very, very large industry and we're right at the center of all this sort of excellent secular growth without anybody really doing anything close to what we are.

Oran Holtzman -- Co-Founder and Chief Executive Officer

And I would just say one more thing. Like what we did have three or four years ago is diversification of offering, Now we have color. We have skin care, we have wellness with SpoiledChild. We are expanding to derma pharma with -- with them and with a Brand 3.

And I think it helps a lot like meeting our goals if some area is softer. But needless to say, as we mentioned that so far we see very strong Q1.

Lauren Lieberman -- Analyst

Great. And if I can just sneak in one more really small. I was just curious cross selling between SpoiledChild and Il Makiage. Do you have any way of kind of quantifying that or what the crossover on the customer base is at this point?

Lindsey Drucker Mann -- Global Chief Financial Officer

Yeah. At the beginning of a new brand, often you see a lot more cross selling, cross over, I should say, of users from Il Makiage that we then convert into customers for SpoiledChild. By the way, that was true for skin also initially for Il Makiage skin. We started off mostly with color on customers who then ultimately would converted to skin.

But now as the brand scale is [Inaudible] SpoiledChild and as Il Makiage skin is another example of scale that they stand on their own more. I think in general, we've talked about something like half of SpoiledChild revenues came from Il Makiage users, not necessarily customers, but users, the folks that had come through our Il Makiage platform given us a bunch of information, taking a quiz, we learned about them, didn't find what they were looking for but then converted over into SpoiledChild in addition to Il Makiage customers who actually crossed over the two brands.

Lauren Lieberman -- Analyst

OK. Awesome. Thank you so much.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Oran for closing remarks.

Oran Holtzman -- Co-Founder and Chief Executive Officer

Thank you very much, guys. See you next quarter.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Maria Lycouris -- Investor Relations

Oran Holtzman -- Co-Founder and Chief Executive Officer

Niv Price -- Chief Technology Officer

Lindsey Drucker Mann -- Global Chief Financial Officer

Cory Carpenter -- Analyst

Lindsay Drucker Mann -- Global Chief Financial Officer

Youssef Squali -- Analyst

Javier Escalante -- Analyst

Andrew Boone -- Analyst

Dara Mohsenian -- Analyst

Scott Schoenhaus -- Analyst

Lorraine Hutchinson -- Analyst

Lauren Lieberman -- Analyst

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