Oddity Tech (NASDAQ: ODD) faced a dramatic 36% drop in premarket trading on Wednesday after revealing a major disruption with its largest advertising partner. This issue has caused customer acquisition costs (CAC) to skyrocket abnormally, significantly impacting the company's near-term revenue outlook.

The trouble began when algorithm changes at a key advertising partner rerouted Oddity's campaigns into "lower quality auctions at abnormally high costs." As a result, the company experienced a sharp increase in new user acquisition expenses. Oddity's management clarified that this problem is unrelated to broader market trends or the company's historical performance.

Co-founder and CEO Oran Holtzman addressed the issue, stating, "We believe we recently identified the root cause of the problem and have already implemented significant actions. We are optimistic these measures will drive meaningful progress in Q2 and return our acquisition costs to normal levels by Q3 or Q4."

However, the immediate impact is substantial. Oddity warned that first-quarter 2026 revenue is expected to decline by approximately 30% year-over-year due to the CAC disruption. Despite this setback, the company remains hopeful for a recovery in the second half of the year.

The announcement coincided with Oddity's fourth-quarter earnings report. During Q4, the company achieved a 24% year-over-year increase in net revenue, reaching $153 million. Adjusted diluted earnings per share (EPS) came in at $0.20, surpassing analysts' expectations of $0.14 and $150.81 million in revenue.

However, profitability metrics showed some strain. Adjusted EBITDA dropped to $13 million from $15 million a year earlier, while gross margin slipped to 70.5% from 72.7%. Adjusted EBITDA margin also fell to 8.2%, down from 12.3%, reflecting higher costs during the quarter.

For the full year, Oddity reported $810 million in revenue, marking a 25% year-over-year increase. Adjusted EBITDA reached $163 million, and adjusted diluted EPS stood at $2.21.

Despite the current challenges, Oddity's management emphasized that underlying demand remains strong. They reiterated their commitment to the company's long-term growth strategy, assuring investors that there is "no change to strategy or long-term growth focus." The company plans to release full-year 2026 guidance in the coming months as visibility improves.

To find out more Investor Relations information about Oddity Tech please visit www.investors.oddity.com .