Perfect Corp.: Alternative Way Of Riding Ongoing Beauty Wave

Overview

Perfect Corp (NYSE:PERF) has 32% upside. I think the beauty and fashion industry is still in the early stages of adopting augmented reality [AR] / artificial intelligence [AI] technology, which bodes well for Perfect, a leading provider of AR/AI-powered SaaS solutions to beauty and fashion brands.

Business description

PERF is an augmented reality AR and AI powered SaaS company providing solutions for the fashion and beauty industries.

Endless opportunities with AR and AI

Until recently, the fashion and beauty industries lacked the resources and expertise necessary to fully benefit from the potential of AR and AI. These industries have historically placed a high premium on real estate establishments where customers can try on clothes and cosmetics. Consumer habits are changing, and with them, the recognition that the fashion and beauty industries need to adopt AR and AI to keep up with the market. The development of cutting-edge technologies is largely responsible for the expansion of this market, as these developments enable and coincide with shifting consumer preferences and spending habits.

There has been a rise in the popularity of beauty products in the digital world (i.e., social media users) in recent years. This massive pressure, I believe, is what’s driving the beauty industry to rapidly adopt AR and AI developments. A growing number of brands have adopted AR and AI, proving that the beauty industry understands the transformative power of these technologies.

In addition, COVID has caused a shift in how beauty retailers interact with their customers, from in-store to online. As more people avoid leaving their homes for social reasons, there has been a lifestyle shift toward online consumption. Undoubtedly, this has contributed to the development of omnichannel beauty industry business models, including e-commerce.

I believe that brands can no longer use a single approach to meet all consumers’ needs because they expect increasingly individualized service. Nowadays, shoppers anticipate personalized product suggestions that meet their unique requirements. Furthermore, I’ve noticed that today’s tech-savvy consumers have higher standards for interaction with brands and products. In my opinion, virtual try-on solutions powered by AI are an integral part of such engaging experiences, which can lead to more website visitors, more in-depth engagement with brands, more brand loyalty, and higher levels of customer satisfaction. By using AI-driven insights, I think brands can meet the unique and ever-changing demands of their customers.

PERF is the leader in this field

PERF has established itself as the market leader in the emerging AR and AI SaaS market for the beauty industry. The company’s reach extends from high-end to mass-market brands and products, covering 95% of the top 20 global beauty groups. The fact that PERF has been adopted by some of the most well-known cosmetics companies in the world speaks volumes about the company’s quality and effectiveness. This has also opened up opportunities to collaborate with indie brands. The rise in popularity of these indie labels has coincided with the rise in the number of internet users actively seeking out specialty goods and services.

Along with its widespread adoption, PERF also enjoys the trust of these brands as a reliable partner. PERF’s contracts with these companies span multiple years and a wide variety of products, sales channels, and even national borders. In my opinion, this is crucial because it limits the ability of new competitors from anywhere to enter the market. More importantly, it gives PERF a great opportunity for upselling, which will help them keep their dominant market share.

PERF’s platform is built to enable scale and omni-channel reach

PERF’s cross-platform, omni-channel reach helps make brands’ products more memorable and therefore more likely to be purchased again. This is because I think that businesses would benefit more from using a neutral platform like PERF, which allows for deployment across all possible sales channels and media platforms. Since PERF is vendor-agnostic, brands can rest assured that a single configuration for an entire catalog of SKUs will allow for uniform customer experiences across all distribution channels. As a result of PERF’s seamless integration across all platforms, the company enjoys a devoted customer base.

In addition, I think PERF is in a special position as the only global provider of omni-channel beauty augmented reality and artificial intelligence solutions. The company’s solutions are adaptable to a wide range of environments, from a company’s own channels to those of the most popular 3^rd party services (Google, YouTube, Instagram, Tmall, etc.) PERF’s alliances with the world’s leading technology companies allow the company to assist brands in incorporating beauty AR and AI integrations into a wide range of top-of-funnel channels, reaching consumers all over the world.

Proprietary technology that powers them all

All of PERF’s branding solutions are supported by an ever-improving technological engine. PERF’s cutting-edge AI technology makes use of machine learning algorithms trained on information from over 10 billion global real-world try-ons annually. This information allows PERF to provide customized recommendations and augmented reality makeovers that feel more like the real thing. Take note that this is a massive competitive advantage that puts PERF leagues ahead of the competition. The AR/AI industry is data-driven, as opposed to the real estate-based retail industry. The victor is revealed to be the one who has the most information and understanding.

Based on F-1 data, PERF created an AR and AI system that can recognize faces in real time using more than 200 facial landmarks and thousands of 3D live meshes supported by visual computing. As a result, PERF can now accurately identify users’ facial features and provide more lifelike effects than its competitors. The technology offers the most inclusive virtual try-on experience in the industry, with support for nearly 90,000 skin tones and more than a dozen makeup textures.

As I mentioned before, PERF improves as it grows larger, and by analyzing customers’ try-on actions across all of its channels, PERF can learn a great deal about their habits and preferences. This in turn hastens the process of product development, resulting in novel products and services that meet the needs of consumers.

Expansion to other verticals

In my opinion, PERF could benefit from expanding its technology beyond the beauty industry into adjacent markets, such as the fashion accessories industry (watch, necklace, etc.). As a matter of fact, PERF is working with Gucci to introduce VTOs for eyewear, and is in talks with other brands to introduce VTOs for jewelry and watches as well. PERF’s potential for growth may lie not only in the fashion industry, but also in the beauty industry, the dental industry, and the orthodontics industry. I believe the potential is limitless, and that all that’s left is for PERF to seize the initiative and establish early market dominance as quickly as possible.

Forecast

The share price performance lately has been nothing but wild. I believe it is due to the speculative nature of a SPAC and also the nascent industry that PERF is operating in.

However, I believe the TAM is extremely huge and there is certainly a long runway ahead of PERF. In addition, it is a fact that PERF has managed to gain adoption by the top global brands, which is a clear positive sign. Using consensus estimates and the current valuation, I believe PERF is worth $9.71, or 32% upside.

Key risks

Revenue concentration

In 2021, the top five brands accounted for 49% of Perfect’s revenue, with the top brand contributing 22%. Any churn from these large customers would be devastating for PERF.

Changing beauty trends

The markets in which PERF operates are dynamic, with consumers’ tastes, technologies, and product performance all constantly shifting. The future of PERF rests on the company’s ability to creatively adapt to these shifts. For Perfect’s business to continue to thrive, advancements in AR and AI, as well as the use of digital marketing by beauty brands, must continue unabated.

Data privacy

Consumers’ private data is not typically shared with PERF when providing services to cosmetics manufacturers and merchants. To the contrary, the company and its relationship with brands may be at risk if it or its customers do not adhere to applicable data privacy regulations or cannot protect the security of the platform. Considering how much private information PERF collects (i.e., face), this is especially important.

Conclusion

PERF is a SaaS company that provides AR and AI solutions for the fashion and beauty industries. The popularity of these technologies is increasing in these industries as consumers shift towards online consumption and expect personalized and engaging experiences. PERF is the market leader in the AR and AI SaaS market for the beauty industry, with widespread adoption by top global beauty groups and long-term contracts. The company’s cross-platform, omni-channel reach enables brands to deploy their products across all channels and social media platforms, increasing visibility and repeat purchases. In addition to its strong market position in the beauty industry, PERF has also opened up opportunities for collaboration with indie brands. The company’s success in the beauty industry provides a great opportunity for upselling and maintaining their dominant market share.