Short seller alleges Oddity Tech is misleading investors

A short seller on Tuesday alleged that beauty and wellness company Oddity Tech has been misleading investors and isn’t the online-only retailer it’s claimed to be. 

The firm, Ningi Research, published a 50-page report that details a slew of allegations against the newly public retailer, including that it runs a fleet of stores in Israel and engages in deceptive billing practices. Ningi has a short position in Oddity but didn’t disclose the size of that position.  

Oddity Tech, the parent company of makeup brand Il Makiage and skincare brand Spoiled Child, sold investors on the premise that it’s disrupting the legacy beauty industry by changing the way people buy makeup online. It bills itself as a purely digital retailer that sells directly to consumers and has said it’s seen outsized profits and growth that similar businesses have found difficult to achieve. 

Shares of Oddity fell more than 10% in early trading Tuesday. Oddity didn’t immediately return a request for comment from CNBC.

Ningi Research is alleging 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.

Ningi Research also said that it has visited the Il Makiage stores in Israel and purchased two of the company’s best-selling products from different locations. The firm said the stores are not part of a franchise but are instead owned by the company. 

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

“The sell-side touts ODDITY’s ‘impressively high’ repeat purchase rates of 100 percent, but we don’t buy that. Our research indicates that customers unknowingly enter into non-cancelable plans, allowing ODDITY to recognize repeat purchases in the following quarters even though the customers don’t want the product,” the report said. 

The report also detailed a host of complaints from the Better Business Bureau and social media from customers who say they’ve been wrongfully charged.

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

Oddity previously told CNBC that more than half of its business is from repeat customers. 

“Any online company that operates even close to our sales will experience this, like there will always be a certain percentage who are unhappy,” said Holtzman. He said that 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. 

“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,” said Holtzman. “We’ll continue to work hard to educate those users and we’ve invested a lot in technology around it.”