Problems at Olaplex Holdings (OLPX)

Problems at Olaplex Holdings (OLPX)

Olaplex Holdings (NASDAQ: OLPX — $10.8 billion) is a company like no other. Olaplex describes itself as “an innovative, science-enabled, technology-driven beauty company.” In reality, Olaplex sells healthy haircare products with sales propelled by an army of TikTok and Instagram influencers. As a sign of its rapid ascent, Olaplex is now worth around $11 billion, up 11x from a ~$1 billion private markets valuation in January 2020. Adding to the intrigue, the company has no physical headquarters, has only ~110 employees, “does not own any real property,” and trades at a hefty 16x sales. Today, Olaplex faces aggressive new competition and waning social media support. With shares priced to perfection, the company’s future looks less than perfect.

Founded in a California garage in 2014, Olaplex was created by Dean and Darcy Christal to help repair and strengthen women’s hair. The company received a notable early endorsement from Kim Kardashian which led to rapid growth. Olaplex currently sells an assortment of 10 different hair care products on its website, through retail chains like Sephora, and through salons.

The company’s growth and premium products attracted the attention of private equity firm Advent International, which acquired Olaplex for ~$1 billion in January 2020. From there, sales exploded in the pandemic as the company and its influencers dominated TikTok, Instagram, and YouTube. That growth, 90% in 2020 and 112% in 2021, helped the company reach a $16 billion valuation in its September 2021 IPO. The company sold no stock and received no cash, instead, Advent sold around 60 million shares for ~$1.5 billion in the IPO, a deal Bloomberg called “among the most lucrative private equity transactions in the U.S.” As Advent sells down its remaining ~75% stake, investors must ask whether Olaplex can sustain its rapid sales growth. The Bear Cave thinks not.