Il Makiage owner's share prices tumble 7% after "incorrect" research report published

A short seller, Ningi Research, yesterday published a 50-page report detailing a slew of allegations against Il Makiage’s owner Oddity Tech. The newly public company has seen shares tumble by 7% on the back of the damaging report.

The report alleged that the cosmetics company has been misleading investors and that isn't the online-only retailer it claimed to be. Ningi has a short position in Oddity but didn't disclose the size of that position.

A spokesperson for Oddity told CNBC: "Oddity fundamentally rejects the short seller report. The allegations contained in the report by Ningi Research are based on demonstratable factual inaccuracies, incorrect assumptions, and unfounded and malicious speculation."

Oddity Tech sold investors on the premise that it's disrupting the legacy beauty industry by changing the way people buy makeup online. It prides itself as a purely digital retailer that sells directly to consumers.

Ningi Research alleged that Oddity is not a purely digital company and that its Il Makiage brand has more than 40 stores in Israel, where the company is based. Ningi further claims that the majority of Oddity's profits are coming from the region – not the U.S.

Oddity said in a statement that the Israeli brick-and-mortar business, totalling 43 retail stores and six beauty schools, represents an "immaterial" part of the business, amounting to less than 5% of the company's net revenue. All of Oddity's revenue outside of Israel is exclusively from online sales", the spokesperson added.

The short seller also claimed that the "secret" to Oddity's digital growth is in subscriptions, which can be difficult for consumers to get out of or cancel.

In October, an analyst asked the company about customer complaints and if the issue was happening "at scale". CEO Oran Holtzman said it's "important to understand the magnitude of the claim and we're talking about a fraction of a percent".

For a "small portion" of its customers, it can be easy to get confused about pre-authorizations made to their cards related to Oddity's "try before you buy" option, which allows a customer to try out a makeup item.

Holtzman added: "Now, I don't think that it makes sense to cancel this massive customer benefit because a super small fraction of users who didn't fully read up like how it works and were confused... We'll continue to work hard to educate those users and we've invested a lot in technology around it."

Earlier this month, Oddity reported a 28% rise in net revenue to £169 million ($212 million) for the first quarter ending 31 March 2024, driven by profitable growth at cosmetics brand Il Makiage.

The company delivered adjusted EBITDA of £38 million ($48 million) against £22 million ($28 million in the first quarter of 2023), representing an increase of 69%.