ODDITY's CPA Dislocation: A Technical Fault, Not a Brand Problem

A Technical Breakdown

ODDITY's Q1 2026 call was dominated by one theme: a sudden, unprecedented spike in cost-per-acquisition (CPA) at its largest advertising partner—which management didn't name but is widely believed to be Google. The result: net revenue fell 26% year-over-year, first orders dropped ~50%, and adjusted EBITDA came in at negative $7 million. As CFO Lindsay Drucker Mann put it, “Net revenue declined 26%, slightly less negative than our expectation of an approximate 30% decline.” — Lindsay Mann · 2026-06-02 The decline was not a brand or saturation issue, argued CEO Oran Holtzman, but a technical malfunction in the advertising partner's algorithm, which began serving lower-quality audiences and spiked bounce rates. He emphasized the break was sudden and simultaneous across IL MAKIAGE's markets—US, Canada, UK, Australia, Israel—something a brand issue could not explain.

The data indicates, in our view, how the issue is technical and not brand or saturation issue. One, the change was sudden, indicating a dramatic break, not steady deterioration over time... Two, a breakdown occurred in different IL MAKIAGE accounts, different markets with the same pattern simultaneously...

To fix it, ODDITY has been running dozens of tests, shifting 40% of acquisition revenue from Try-Before-You-Buy to the standard Buy model, and cutting overall acquisition spend—but not stopping it entirely. As Holtzman explained, “Without spending, we will not be able to identify the problem, and we will not be able to test all the things that we have done in the past quarter.” — Oran Holtzman · 2026-06-02 Management remains hopeful, citing the ad partner's own estimate of a 40–60% CPA recovery once its system recalibrates, and a first sequential improvement in May (CPA down ~28% from April).

The Path to Recovery

The company's confidence rests on a strong repeat-rate base. Repeat rates remain above 100% on a 12-month net revenue basis, and repeat sales made up ~2/3 of Q1 revenue, up from ~56% a year earlier—evidence that the existing customer franchise is intact. This is a crucial point: the dislocation is confined to new-user acquisition, not the lifetime value of the book. In prior quarters, ODDITY had already flagged algorithm changes as a headwind, but the current crisis is far more severe. On the February call, Holtzman said, “We wouldn't sit here today if we didn't think that we can solve it.” — Oran Holtzman, Co-Founder and CEO · 2026-02-25 Lindsay Drucker Mann echoed that on the same call: “Repeat rates remain very strong. This is one of the reasons why we know we don't have a brand issue.” — Lindsay Mann, Global CFO · 2026-02-25

Looking ahead, management deliberately kept full-year guidance vague—only committing to positive adjusted EBITDA—while guiding Q2 revenue down 25–30% and EBITDA of $8–10 million, with the explicit assumption that “CPA remains similarly difficult.” — Lindsay Mann · 2026-06-02 The recovery will be sequential: improved CPA drives first orders, which then feed repeat and profitability. But the lost first orders from H1 will weigh on the back half and into 2027.

Beyond the Headline

While the algorithm issue dominates, ODDITY is also building its future: METHODIQ, the telehealth platform, is on track for ~$25M revenue this year, and ODDITY Labs is advancing novel molecules like Neurexa and Zeralaq. Yet these narratives were secondary on the call—a reminder that even a well-diversified D2C business remains hostage to a single platform's algorithm. The market's own security posture management and AI-infrastructure themes are irrelevant here; this is a company-specific technical shock, not a sector-wide move. As Holtzman noted, other beauty brands are less exposed because they are omnichannel, while ODDITY is 100% D2C.

This is a genuine inflection point. If the CPA fix works, ODDITY returns to its 20/20 algorithm; if not, the stock's de-rating may be permanent. The next quarter's CPA trends—not overall revenue—will be the tell.