OLAPLEX S-1

My god, that hair looks nice

1/ TLDR @olaplex S-1. Hair repair business and social media darling Olaplex files for a monster IPO. In a world where beauty and hair care is becoming commoditized, having an efficacious, beloved and patented product leads to a breakout success

2/ We’ll discuss later whether it actually reconstructs hair, but you really can't deny the stuff is doing something, Spend two seconds here and you'll see what I mean: https://www.tiktok.com/tag/olaplex. The Olaplex tag has more than 379.6M views on TikTok. 

3/ The business began in 2014, gaining credibility with stylists before launching D2C + wholesale in 2018. Stylists push Olaplex all over YouTube, which drives the brand. https://www.youtube.com/results?search_query=olaplex&sp=CAM%253D

4/ All this buzz has led to mind blowing financial results. Net sales increase from $99.6M in 1H 2020 to $270.2M for 1H 2021 (+171%). Gross margin of 79&% operating margin of 55% and EBITDA margin of 64% in 1H 2021.  

5/ It’s nice to see a company control cost - SG&A, including marketing, is 16.7% of sales. This compares to @warbyparker at 63.3%!!

6/ Does it work? They have 100 patents, most importantly around the ingredient Bis-aminopropyl diglycol dimaleate. Claims to chemically repair the disulfide bonds that are damaged from bleaching, sun, chemical treatments, etc. To geek out on the science, see https://labmuffin.com/how-does-olaplex-hair-treatment-work/ 

7/ That said, there aren’t any true clinical studies. Lots of celebrity stylists and customers rave about Olaplex, but others, like Brand Mondo, are more nuanced

8/ Whether or not it truly works, stylists think so, with a professional NPS of 71. And > 90% of Olaplex customers believe it makes their hair healthier. Also, the product has a “clean” designation from Sephora, meaning it doesn’t have harmful chemical ingredients

9/ Market size here is huge, with a $77B global hair care market and most women doing something to damage their hair (coloring, heat styling, et al).  47% of net sales are already international

10/ The company is reaching customers where they are. Professional channel is 55% of sales, (+59% YoY);  specialty retail is 18% of sales (+75%) and D2C is 27% of sales (+ a whopping 260% YoY) 

11/ The channels appear to be synergistic. Nearly 50% of our customers that purchase product on OLAPLEX.com have also purchased OLAPLEX products in retail locations and 40% have also purchased in a salon

12/ Super smart focus on continuing to foster the core professional channel, given how important stylists are in recommending products to customers. Launched last Feb ”an iOS app for its network of salon professionals, in a bid to support its largest sales channel."  https://www.glossy.co/beauty/olaplex-launches-app-for-professional-hair-stylists-in-aim-to-be-tech-focused. 

13/ Still early days of pulling levers for growth in non-professional channels. Already the #1 haircare brand at Sephora in 2020. Also, they want to move to new categories and cite 82% of consumers familiar with OLAPLEX would like to see an OLAPLEX skin care line

14/ I wish we could see @olaplex cohort analysis or some indication of repeat purchase behavior. Much less nuance in the customer data than your e-commerce S-1s like @warbyparker @akabrands. I also wish we understood more about the international business and where it was centered

15/ It’s hard to value something growing this fast and this profitably. Assume growth slows to 75% YoY in 2H 2021 and 40% next year —> revenue of $590M in 2021 and $826M in ’22. I assume EBITDA margin comes down over time. At 55%, that is $454M in EBITDA in 2022. 

16/ At 28x EBITDA like Estee Lauder or L’Oreal, that’s a market cap approaching $13B. You could justify a higher number due to growth or lower due to dependence on a single brand vs a portfolio

17/ Interesting how many of the very best brands going public this year are backed by PE shops, rather than VC firms. Olaplex (Advent) joins ON (Stripes Group) and a.k.a. Brands (Summit). These PE shops are getting venture scale returns while pushing these companies to generate significant cash flow before the IPO 

18/ Also interesting to see DEI featured prominently in the @olaplex S-1: in tradition of Honest Co, reports out on DEI employee metrics. And reports on environmental sustainability and carbon footprint in the S-1