Hello everyone, I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. I'm very pleased to welcome ODDITY Tech here for the first time to Morgan Stanley's Global Consumer and Retail Conference. They've got a strong track record of growth in the beauty category, both pre and post the IPO last summer, even with the category weakness we've seen recently. So first, before we get started, I do have to note disclosures. There are important disclosures on Morgan Stanley's website at www.morganstanley.com, and if you have any questions, you can reach out to your Morgan Stanley representative. So with that, we're very pleased to have Lindsay Drucker Mann here, CFO of ODDITY Tech, here with us today for her first fireside chat at ODDITY, the other side of the table, so to speak. So thanks so much for joining us.
Thanks for having me.
Appreciate it. So maybe first, just given you're fairly young as a public company and a track record in public markets, maybe I'll just give you an opportunity upfront to detail to investors who don't know your story as well, the key drivers behind your business, and what makes ODDITY different and unique in this beauty landscape.
Yeah, great, thank you. We launched in the U.S. in 2018 with our first brand, IL MAKIAGE. Today we've grown to the largest online direct-to-consumer platform in the U.S. and most likely in the world, I believe in the world, with two brands, IL MAKIAGE, which this year will do around $500 million of revenue, mostly in the U.S. It makes it one of the largest beauty brands in the world and certainly top among all U.S. beauty brands. And then SpoiledChild, which will approach around $150 million of revenue this year based on our financial guidance, which we launched in February of 2022. SpoiledChild is a holistic wellness brand, including skin and hair, nicely profitable, and the speed that it's scaled is really unprecedented across all of direct-to-consumer, not just beauty and wellness.
Really a remarkable business platform in its ability to scale brands online within what we think is one of the most attractive and lucrative TAMs on the planet, where the consumer has really always been online but never really able to shop and convert. We figured out a way to unlock this category so that they're able to shop in the channel that they want to. Actually, I think this year you really see a striking difference within the beauty category for brands that are struggling with legacy distribution and haven't innovated much in product and haven't innovated in their approach to getting to the consumer versus our business, where we're really at the forefront of that innovation and, to be honest, just beginning.
The best way for me to sort of describe why it works and how our founders describe it is, if you think about walking into a Sephora, and as a consumer, you have so many choices, so many brands, ingredients, beauty routines, tones, undertones, it's an overwhelming experience, okay? But the beauty of a Sephora is that somebody comes up and helps you, and they ask you what you need, they match you to the right product, and they show you how to use it. Okay, those three steps are really important. Then you go to the cash wrap, you feel like a million bucks because you found what you wanted.
Then how those businesses translated that to online, where instead of that process we just talked about, they sort of drop you on a website with thousands, hundreds, and maybe thousands of SKUs and tell you to figure it out yourself. So it's a bad experience for the consumer. They don't know what they want, and they end up leaving, or maybe worse, they try to figure it out for themselves, pick the wrong thing, have a bad experience, and don't come back. What we, our founders, came to believe was using technology and data, okay? Instead of a store associate, you have a machine model that can match you to the perfect product. Instead of somebody showing you how to use something, we have video on demand, and that was really the unlock for us.
As we look into the future, we have, number one, we're tiny in an enormous $600 billion global TAM. Even though IL MAKIAGE will be one of the larger brands in the world in beauty, it's still small by comparison of the market. Because we don't have retailers interfering, because we don't have retailers taking away distribution and cycling new things in and out, we can be a much larger beauty brand than what has been done before. We believe IL MAKIAGE is a billion-dollar brand over time. We said that we'd get there a year ago, we said five years hence, so we're four years from now, we expect to deliver that and we're on track. We've also said SpoiledChild is a billion-dollar brand.
We'll get there with new product categories, growing our existing products, which are still growing across vintages, everything from the 2018-2019 vintage is growing to the 2024 vintage, so many different products are growing, and then international remains a very large untapped opportunity for us. We think that can be around half the business, and we're just scratching the surface on it today, and then finally, we have new brands that we think will allow us to even better capture this large TAM, so brands three and four are already well in the making with teams. They're on track. They'll be ready for the second half of next year, and other brands in development.
Great, that's helpful. And obviously a great track record over the last few years. As you sort of dimensionalize forward growth over the next few years versus what you've seen the last few years, maybe compare and contrast where that growth comes from going forward with what you've seen recently.
So the diversification of the business is really incredible as you think about when we started and we had sort of our core color business, a lot of it our complexion products, our core color portfolio with just one brand. When I started in 2021, that was the entirety of the business. Today we have two brands, multiple categories, so we've got a big business in skin today, we're growing in hair, and now we have two more brands on the horizon to launch. It's just the number of levers we have to grow has increased significantly, which is great because we're not reliant on any single driver. We have multiple drivers and combinations of drivers.
In addition, we have also done a bunch of testing of international markets, so markets we haven't yet opened, but where we know we've sold thousands of orders, we've set up local websites, local distribution, local everything, and watched how those initial tests perform very, very strong, consistent with what we saw when we launched in the U.S. or better. And so those are just sort of on tap for us. One of the philosophies of our CEO is "no easy wins." And so even though we have that opportunity, we could flip it on and drive significant incremental revenue, we've been slow playing that because we have just so much opportunity. We're prioritizing things that we're doing more in the U.S., but that will come. And in addition, we have what we're doing in ODDITY LABS.
So we acquired last year a biotech company called Revela in order to really accelerate our ability to develop next-generation ingredients to make the best products on the market, really game-changing products to truly solve consumers' pain points in an industry where ingredient innovation has just not happened. So I think you're going to see much more in the way of product innovation for proprietary molecules we develop out of labs in order to formulate molecules, many of those can be winner-take-all opportunities as we deliver things that are much better than what's on the market. So that's our focus.
And as you think about the impact from ODDITY LABS, is it more new products with new molecule development? Is it existing products? Just give us some sense for how that plays out over the next few years.
So new products, so these are proprietary molecules we've discovered and can formulate into altogether new products, some for new brands, some for our existing brands. As you think about the ODDITY platform, just to maybe take a step back, we support a portfolio of standalone brands, so independent management teams, independent operations, independent standalone everything, but we have shared technology, and then of course we have our user data. So the shared technology tools, for example, serve every single brand. Our computer vision serves every single brand. Our machine learning serves every brand. And similarly, our molecule development out of Boston serves all of our brands. Our brands are actually a really important way for us to understand what the consumers want.
So having that direct-to-consumer relationship, it's the first time that you're connecting from the moment of molecule development to the consumer itself, which is important in beauty because it's not just, is it effective at solving my pain point, but does the product feel good? Does it smell funny? Is it oily? All these things for a consumer product, for a beauty product in particular, matter. You can get that right at the moment of design in a way that's not possible when you have all these sort of barriers in between molecule discovery and the consumer itself.
Great. You touched on earlier your strong track record over the last few years. Obviously, that hasn't gone unnoticed. You have some large-scale competitors in the beauty category, many of whom are looking to catch up, particularly in e-commerce sales, with technology, et cetera. So can you discuss your competitive advantage, how you stay ahead of the competition in sort of a rapidly evolving landscape here?
Yeah. We see ourselves as having very profound competitive advantage, and it really grows every single day. I think the first is our 50+ million users on our platform who we know so much about. If you were to try to acquire all of those today, it would be incredibly expensive. So the fact that we have built this connection and relationship with these users is a starting point of our competitive advantage. These users allow us to develop products with high probability of success, and the best example I can give you of that is SpoiledChild. That's a brand that we launched in 2022. We spent around $20 million to launch it of upfront investment. As I said, today it'll do approaching $150 million of revenue in 2024 and nicely profitable.
If you think about sort of what the beauty acquisition multiples are, you call it between five and 10 times revenue, that would be a $500+ million acquisition if we wanted to do it today. Again, we developed it organically. You know better than anyone that a lot of big consumer platform companies, conventional companies, they're great at integrating brands that have already been developed, but launching them organically is very, very hard to do. For us, it was easy to do because we know so much about that consumer.
That understanding based on our user base allows us to expand in ways that not only have higher probability of success, but where we have great visibility to allow us to take a really big swing, put real big dollars behind the launch and growth and investment behind those brands because we know we have a higher conviction in getting a sufficient return. That's true for SpoiledChild. It's also true for all of the new products that we've launched. So again, we used to be just a one-color cosmetics brand. Even when I started a few years ago, today the product portfolio is significantly diversified. We have a great hit rate of launching new brands and new products into our existing brands, again, because we know who the user is.
She's told us what our problems are, what her problems are, and it allows us to do a really nice job of developing products for those users and then launching them into a ready audience. One of the things that our CEO talks about is most direct-to-consumer companies have a product, they go looking for an audience. We have an audience that we're launching products into, and it allows us to do it at much higher incremental margin. So I think that user base is an enormous competitive advantage. In addition, our technology tools, which, as you think about something like PowerMatch or our shade matching capabilities, the machine algorithms have to get it wrong a lot first before they get it right.
So the fact that we've already gone through and endured the pain of sending literally the wrong products, the wrong shade products to people, and now we're in a position where we have those capabilities gives us a big advantage in actually solving one of the major pain points when you're shopping for cosmetics, which is what is the right shade, what's the right product for me. I think that ODDITY LABS can be an enormous competitive advantage. That's where we can get a first mover that really matters as you're developing new molecules. And it's not just like V1 molecules. After we have a molecule that works, we can continue iterating V2, V3, V4, and we have insight into biological pathways, why biologically the body responds in certain ways versus others that allows us to quickly iterate and make even better products.
Now at this point, our brands have very strong satisfaction, very strong brand equity, and that also is a reason why we're able to launch new products into the same user base because they know our brands, they trust us, they had a great experience. I think that for the, and sorry to be long-winded, but just as I think about the incumbents, it feels like however many years ago, direct-to-consumer was something that maybe they tried, they struggled at. Now you see incumbents moving towards Amazon, for example, which is a tough way to build a real direct-to-consumer business and staying reliant on retail partners because direct-to-consumer is hard. I just think that we haven't seen any big push from those guys into our type of business.
Great, that's helpful. You talked about leveraging that existing consumer base and it's a competitive advantage, particularly as you've got brands three and four coming up and obviously the success with SpoiledChild. Can you take us through how you strategically prioritize that existing customer versus bringing in new customers and maybe how that ties into your growth goals and how you think about developing each of those customer bases as you look out over the next three to five years? Does that change at all as you move over time?
Yeah. So one of the important characteristics of our business is that we have a lot of repeat. Our revenue, a large portion of more than half of our revenue comes from repeat customers. And the reason that's important is because repeat's quite profitable. We have around a 70% gross margin business today. You don't need a lot of OPEX to drive a repeat sale. And so for us, the ability to sustain a large portion of our business with repeat and the very strong repeat rates that we have, so if somebody comes in over the next 12 months, we're going to deliver 100+ % net revenue repeat rate. And those continue to increase in year two and year three cumulatively. So we have very satisfied customers that continue to come back, and that's a really important engine for us in driving our profitability.
As you think about sort of the path forward drivers of the business, we will continue to have a lot of repeat as an important part. That would be sales from existing customers and whether they're buying more of the products that they've already purchased or we're expanding them into a larger product portfolio. That's something that we're focusing on both of those. We'll have more acquisition, more new users altogether. I guess one important dynamic of our business that we should call out is we're different than other direct-to-consumer companies in that we don't acquire revenue. We don't acquire customers. We acquire users. A user is anybody who's giving us 50+ pieces of data, right?
So they're coming into our online funnels, we're learning about them, we're picking up metadata as well, and then importantly, they're giving us a way to get back in touch with them. And many, in fact, most of those users don't convert right away, but we do a really nice job of converting them over time. And we do that by figuring out ways to market effectively, retarget them, introducing new products that we know they went to IL MAKIAGE and didn't find what they're looking for. Now with our new product launches, they find it finally and we're able to convert them in the future or maybe we're converting them with a new brand. And so we have this backlog of users that will convert in the future into new customers, right?
We've already "acquired" them, so we've already paid for them, for a big portion of them, and so those conversions are at high incremental margins as well, but that's another important driver in addition to entirely new user acquisition as a driver.
Right. Okay. And among existing consumers, can you talk a little bit about IL MAKIAGE and SpoiledChild, understanding SpoiledChild doesn't have as long a track record, but what's driving repeat there? Is it number of orders? Is it average order size?
Yes.
The basket? What's sort of driving that existing consumer growth?
So repeat is driven by, number one, we've got more products to offer, right? So if she came before and there was only one product she was interested in, now she has more to choose from. And so she's able to add those to her Edison cabinet drawer. She's able to add those to her drawer. So that's important in addition to new brands, right? So maybe she came in through IL MAKIAGE and now she's purchasing IL MAKIAGE and SpoiledChild and Brand 3 and Brand 4, you have those layers. But it's also because our models, our machine models are just because they learn more, they're better and better at retargeting, right?
They're better at understanding when to reach out to her, the frequency, what to show her, what to say, what the copy should look like, what the experience should be like once we've pulled her back into a funnel, once we've pulled her back onto the website. All of those things in combination have been big drivers of repeat, and you're seeing repeat at the ODDITY level. Our net revenue repeats have been consistently increasing, but if you pulled apart IL MAKIAGE from that as well, for example, you would see consistent increase in repeat rates as well.
Great. That's helpful. Maybe we could talk a little bit about vision and how important that is going forward.
Yeah.
How you integrate that technology more in your business and the commercialization of that from a revenue standpoint?
Yeah.
As we move out over the next few years.
This is when I wish I had my animations on the screen behind you so I could show you some of the things we're working on. They're super impressive. We got into vision three years ago. We acquired a vision software company called Voyage81, integrated the team, and now that forms the basis of our vision capabilities that we've continued to build. There's two focuses for that group. Number one, to make our existing matching better, okay? And number two, to develop new tools. And really vision allows us to get answers for things she doesn't know, right? Currently, the way we collect data is asking questions about your beauty routines, your skin concerns, your skin conditions, but there are some things she doesn't know, and vision allows us to pick up that information to help her.
So if you look, for example, at making our existing tools better, PowerMatch, which was our shade matching engine, originally we trained it just on all of our transaction data. And then as we got more transaction volume, we were able to just train it on the highest quality data. So did she buy? Did she buy again? Did she leave a review? Did the review say perfect match? As an example, training on high quality data gave us even more improvement in our matching capability. The latest phase is we've incorporated vision for the first time. And that's because we're taking scans of someone's face as they come through onto our site, and we've learned a lot. We've been able to train our models on that and unlock even more improvement in our shade matching by using vision.
In some of our top selling shades, we've actually even been able to decrease returns, sort of mid-teens kind of rate, which for a company that's already quite accurate, it's incredible. At some point, there will be diminishing returns, diminishing returns on our ability to reduce returns because our matching is very good, but we still have some areas where we're seeing improvement and we're going to continue to push as far as we can. So that's sort of one set of vision tools, and there will be more of that integration. In 2025, we saw some improvement in 2024. In 2025, we'll see even more of that rolling out and integrated in the user experience. The next part, which is a little bit sexier and more exciting, but also really important, is the vision tools that we're building for Brand 3.
Brand 3, we've talked about as medical grade skin and body brand. And so for conditions like acne, for example, where vision is really important in terms of assessment, communicating with the user, helping them understand that you've got the right product to match them with, and then very importantly, coaching them all the way through to clarity. So not just getting the assessment right, but then also tracking how their inflammations, in the case of acne, how the acne is evolving, helping them understand what the progression should look like over time. That sort of coaching, handholding is really, really important, and vision puts us in a unique position to do that.
Great. That's helpful. Maybe we can talk a little bit about growth profile of Brands 3 and 4, but IL MAKIAGE and SpoiledChild and how you think about their contribution to growth going forward. SpoiledChild, I think, is approaching the core of the business. So how do you think about that going forward?
Yeah. You know, the truth is we don't think about it that way. We really think more at the ODDITY level and driving revenue at the ODDITY level and making decisions based on, number one, where do we see a better return, or number two, strategically, how do we want to position the business? So for example, in order to allow Spoiled to grow as much as we did, we've constrained overall top line. So our algorithm, I'll remind you guys, is 20% revenue growth, 20% adjusted EBITDA margins over the foreseeable future. That's our long-term earnings algorithm. And so in order to maintain revenue growth, sort of in that 20s range, you have to constrain some things if you have a brand that's growing from, in the case of SpoiledChild, $25 million of revenue in 2022 to $110 million of revenue in 2023.
We had to slow IL MAKIAGE down in order to do it. Similarly, we've built IL MAKIAGE skin to be around 25% of that business, which means we had to slow color down. Even though color wants to grow more, you're forcing constraints. We're fine with it because we want lots of runway, lots of ways to grow so that I can sit with you at this conference every single year and say with unbelievable conviction that we're committed to this algorithm and we feel like we've put out guidance that is incredibly achievable, that we have high visibility to, and so leaving growth on the table and constraining growth in areas that want to grow more allows us to have some of that very strong conviction.
In the case of how we think, we're thinking holistically about growing ODDITY, and then we're making strategic decisions about where we want to add more growth or where we want to pull back. We have specifically said IL MAKIAGE will be a billion-dollar brand four years hence, so you get a sense of what the CAGR will look like on that kind of business. SpoiledChild is a billion-dollar brand we're building towards the future. Brands three and brand four, we're super excited about the size of those markets and their ability to be very, very large contributors. I think you're going to see broad-based growth from a lot of different areas compounding to an overall ODDITY level revenue outcome.
Okay, and can you discuss your strategy to grow the business internationally?
Yeah.
How big a focus is that? You've obviously got a lot of growth priorities in the U.S., so just how do you manage that and what are your expectations for the next few years?
International is a huge opportunity. That could be 50% of our business. Obviously, you see with many of our competitors that international is the largest part of their business. And what's driving our business is consumers' desire to shop online and their desire for high-performance science-backed products. This is something we see in many markets all over the world. And with the nature of the competition, the industry has just fallen behind where the consumer wants it to be. And so that gives our opportunity to really come in and have impact, makes it even stronger. We have currently around 20% of our businesses overseas. We're in U.K., Germany, Australia, Canada, and Israel. Those would be our international markets. Israel is a bit of a different beast because that's a legacy business with brick and mortar, but in those other markets, it's online only.
Everywhere we compete, we want to be number one or number two, which we are in those markets. But on top of those, we have called it a dozen international markets that we've tested, and that means set up local websites, local distribution, local content, local everything, gone in the market, tested, sold thousands of orders, observed how the consumer cohorts look like, the satisfaction levels, the returns, the repeats to make sure those are viable markets for us, and then we shut them down and put them in a drawer and wait to use them in the future. As Oran says, no easy wins for the company.
So it would be pretty easy to flip those markets on and have immediate incremental revenue contribution, but why use them right now when there's many other things that we can do that are harder than the business that we've been prioritizing? It's hard to hold the teams back, right? Because we have these markets ready to go, and we will be selling more internationally. We will be using some of those levers, but we really have slow played it up to this point. SpoiledChild is not in any international markets, but there's a lot that we know works and that we're excited to finally get the brand into.
And are those markets, are they generally offer you enough opportunity based on that testing that they would make sense over time? It's just a matter of prioritizing?
Yeah. Population, total hundreds of millions of incremental consumers. Actually, this year we started, most of our tests have been in developed markets. This year we did some tests in developing markets that went really well. So huge market opportunity, huge population size where we can really come in and help to transform that market.
Okay. And SpoiledChild, what are the thoughts around international expansion there? Is it a matter of prioritizing it at some point? Is there a time frame in mind?
Yeah. Similar to IL MAKIAGE, huge opportunity. We've really slow- played it, but that's a brand that we know will have a big international presence.
Okay. Great. Maybe we could touch on M&A for a minute. You guys have a sort of wider open space in theory, given there's a lot you could do with technology, right? And you have a fairly narrow product set. So give us a sense for when you're thinking through M&A, what are the areas you're looking at? Imagine it's a bit more technology-based, but let me not answer the question. Let me let you answer the question. And given the internal growth opportunities you mentioned, is it a focus or is this probably a minor piece of the story over the next few years, understanding it's episodic?
Yeah. So as you know, we have an attractive, powerful balance sheet. So we exited the quarter with around $250 million of cash and cash-like things on our balance sheet. We spent around $100 million on a buyback recently, but the business is very cash- generative. And I think in the first nine months of the year, it was something like 90% of our EBITDA we converted into cash flows. So very obviously unusual for a growth company to be throwing off so much cash, but this is our business and we view our balance sheet as an enormous asset for us to flex in the future. We have done some acquisitions in the past. So for example, Revela, which we acquired for a combination of cash and stock, that was done last year. Voyage81, which is a computer vision company we acquired in 2021, was another acquisition.
So far, they've mostly been on the tech and capability side. We would love to acquire a brand and plug it into our platform. Again, the platform is set up to support a portfolio of standalone brands. The hurdle rate for us is really high. Given the math I walked through on the upfront, $20 million to start up SpoiledChild versus acquiring today would be $500+ million . So we have a high hurdle rate, but the first thing we would look for is something with an amazing product. As an online-only business, having the absolute best product that drives AOV, loyalty, repeat, if we don't have that, then we don't have a business. So we have a culture that really prioritizes product because from a financial perspective, it's a must.
So any acquisition would be something, product is something that we really focus on that can drive a lot of satisfaction, loyalty, and repeat. There are some examples where it could fill out some capability that we wouldn't be able to build ourselves or really accelerate our timelines. But again, the hurdle is high for us. We've definitely been looking. We have a team that's focused on looking. There may be some stuff for us to do on the biotech side as we build out some of the stuff in ODDITY LABS, but that's definitely an opportunity for us in the future. That being said, the best dollar return for us is currently reinvesting in our business given the high returns on capital that we generate.
Right. Okay. And put share repurchases in context. We're not used to growth companies repurchasing shares as much. Then again, we're not used to growth companies having net cash and such a strong balance sheet and such strong cash flow early in their life cycle. So is that more sort of opportunistic, the share repurchases recently? How does that fit into the strategy around capital allocation?
Yeah, so in June, our board authorized our first buyback program, $150 million over three years. We got through around $50 million of that so far this year. I would definitely describe it as opportunistic and not programmatic, but we think our stock offers an incredible value today, and so we want to take advantage of that. In addition, we repurchased some stock from L Catterton. We announced a $100 million buyback that we approached them for to reduce their overall position in the company to around 4 million shares. We have around 57 million ordinary shares outstanding, so not much left there, but we want to facilitate a really orderly transition from shareholders of private markets into public markets.
Yeah, I think that we think, given where it is when the stock trades at a compelling value, it's a great use of our capital, but we're not obligated. We're not committed to or obligated on an ongoing basis to do it.
Great. Maybe we can spend a little bit of time on the category itself and the beauty category. I'd love to get your perspective on market share for e-commerce as a percent of the category longer term in light of what we've seen recently, which has been a lot of channel volatility here in the category. So any updates from you on your thoughts around how online progresses as a percent of category mix over time?
We talked on our last call about how while we see a number of our competitors struggling with excess inventory and deteriorating traffic, that we don't think this is an industry that's in peril. In fact, we think the industry is really healthy and we see a lot of areas of growth, but it's an industry in transformation. And the channel shift has been a really important driver. And it's not something where people who are looking at the data or even incumbents really have visibility into. So if you look at us or if you look at Amazon Beauty or if you look at the hundreds of direct-to-consumer brands, smaller businesses, but still Shopify sites, etc., there's a lot of growth in those areas. But where you're seeing dislocation is in the conventional brick-and-mortar distribution.
Obviously, you would know better than I would, but a lot more areas of distribution people have called out as being an issue. If you're a brand and you're selling to a third-party retailer, you don't really know what end demand looks like and you're sort of surprised when you see that sell-through all of a sudden is not as strong as you expected because you just don't have those close touch points. For us, nobody is in the way between us and our consumer, right? So we're never surprised that there's some excess inventory in the channel, and that gives us an incredible amount of control. Not to mention that we're religiously studying the cohort behavior, the satisfaction, the repeat to make sure that everything is working in a really healthy way. But yeah, I think channel today, online penetration is around rough numbers, 25%.
We think it'll be around double that. That's where the channel wants, where the consumer, most of your companies and other big beauty retailers will tell you, I don't think anyone denies that the beauty consumer starts their journey online. It's just that up to this point, they've mostly finished it in- store, and in fact, one of the key reasons why our founders felt conviction in their ability to start an online business, even though everyone said it can't be done, was beauty was like number two, number three most popular category on Insta, on YouTube, right? The beauty consumer is very online. It's just nobody had figured out how to allow her to convert. Now we're in a position where we have our technology, our capabilities, our user interface and data that are actually unlocking online for one set of consumers.
You also have more brands that are running to Amazon and they're getting better at beauty. And so the online migration is underway. And given that it's already a venue where the beauty consumer is looking to learn and understand product, it's very natural that will also be a venue where she's looking to convert. And then you can look at other markets, for example, like China, where you already have penetration approaching that sort of 50% level, and we don't think the U.S. is going to be different.
Right. Great. And maybe given that beauty category weakness, you can just touch on your visibility. You mentioned on the Q3 call, you got off to a good start in Q4, but just given what we're seeing in the industry in general, is there any secondary impacts that come back to you, whether it's promotion from competitors or whatever it might be, maybe not even directly, but indirectly? How do you think about level of visibility on your business here today?
Right. Q3 was very strong for us. We said we started the fourth quarter also in a very strong position. I mean, the year has really turned out the way that we planned. If you look at our guidance every single quarter, we've exceeded our guidance on really every line, including revenue. So in this most recent quarter, we beat our revenue guidance by around two points at the top end, and what has been a bit better than our plan has been our repeat rates. So we're getting a little bit more from those repeat cohorts than we had sort of modeled, which has been great, but at this time of year, it's really mostly a repeat business for us. We're not a promotions brand. I heard some of your folks in your industry writing about 30 off, 50 off type things for some of the big brands.
That's not. We don't promote that way. We don't think that's not a customer that we want to acquire because we're not going to get the LTV out of it. And as our CEO says, it's sort of like once you get her hooked on promos, it's like a drug. She never has enough. So we've always stayed away from promotions, and this is not a big time of the year for us to do business. That being said, Q1 and Q2 is a big time of year for us. And in order to make sure we're super prepared, again, as a direct-to-consumer business, we have the luxury of doing tons of testing across ad sets, product categories, funnels, new technology capabilities, new vision tools, all this stuff so that we have new international markets.
So we have so many levers in our back pocket when we're entering the quarter, so many ways to grow and visibility that a lot of things work that we can just sort of unleash for the quarter, in addition to the fact that we never maximized our growth in 2024, for example. So we slowed a lot of things down. We purposely are pacing our growth to leave more on the table for the future. So we have a lot of that. And everything that we see gets us really excited about 2025.
Great, and maybe we can end on AI has been something that's been in your business model for years before it was a huge buzzword in the investment community. As you think about your business today and how it's developed in the last few quarters, obviously machine learning is a big piece of the business model as we discussed, but what are some of the other ways you're using AI to drive your business and be more effective as an organization?
We use it in so many ways across the user journey, whether it's matching the right product or creating the actual user experience, right? So you think about a traditional store model, the productivity of the store, the productivity of the store will depend a lot on the store format, right? What's the fixturing? Where's the impulse buys? Same thing for us, but instead of a predetermined store prototype, the store is being built as she walks through it based on her data. And machine models are just much better set up to handle complex inputs, like did she come in from TikTok at midnight and is she 25 years old versus is she a 40-something from Facebook in the middle of the day? And with hair issues or sunspots, that level of complexity of those inputs gets very high very quickly, and machines are just much better determined.
So there are so many ways where we're using models across the user journey. But with some of these new foundation models, we're finding even more use cases. And so they're allowing us to build new models faster and at a lower cost and finding even more use cases. So a lot of the consumer-facing stuff, we can start using some of these foundation models in order to improve areas we weren't able to do before. Not to mention molecule discovery itself. It's an important part of ODDITY LABS is using AI for high-throughput screening and discovering next generation of molecules for new products.
Great. That was very informative. Thank you so much for being here.
Thanks, everyone.
We appreciate it.