Freedom Broker raises target price for AI try-on company Perfect Corps.

Freedom Broker has raised by 29% its target price for Perfect Corp., a small-cap company that develops AI solutions for the beauty and fashion industries. The upgrade is attributable to Perfect Corp.’s recent acquisition of virtual try-on platform Wannaby from luxury online retailer Farfetch, as Freedom Broker expects Wannaby to boost the company’s long-term growth. 

According to a note (seen by “OnInvest”), Freedom Broker values Perfect Corp., which sells access to its virtual try-on technology for makeup and accessories, at $4 per share, 29% above its previous target price and more than double the stock’s current market price.

Yesterday, March 19, the stock closed at $1.84 per share, having climbed about 0.5% during the day, before giving up those gains in premarket trading today.

One of the reasons for Freedom Broker’s higher valuation is Perfect Corp.’s significant client growth in the fourth quarter of 2024. In the B2C segment, the number of paid users for its YouCam apps grew 14% year over year to more than 1 million, according to a press release.

However, this has a price, according to Freedom Broker. In the fourth quarter, Perfect Corp.'s gross margin fell 7.2 percentage points to 74.1%. The company attributed this to the increase in payment processing fees, noting that the more subscribers YouCam has, the more fees it pays to Google and Apple.

Freedom Broker also believes the recent acquisition of Wannaby, a virtual try-on platform formerly owned by luxury online retailer Farfetch, will contribute to Perfect Corp.’s long-term growth. It expects cross-selling opportunities with Wannaby to boost the company’s conversion rates (the percentage of visitors who end up buying something). Additionally, the deal expands the company's market reach in the luxury fashion segment, as Guru Focus points out. Wannaby’s clients include brands such as Lululemon, Dolce & Gabbana, and Diesel.

Freedom Broker also highlights some risks, mainly around Perfect Corp.'s B2B segment. It notes that despite overall client growth in this segment, the number of key customers has not changed for three consecutive quarters. Licensing revenue plummeted 72.2% to $0.5 million. The company itself guides for this segment to continue shrinking as it transitions from selling perpetual licenses to a regular-subscription model.

For the full-year 2025, Perfect Corp. guides for revenue to grow 13.0-14.5% compared to 2024, when the top line stood at $60.2 million. However, the company also expects the B2B segment’s share of total revenue to decline to 30-40% in 2025. Until recently, the revenue contributions of B2B and B2C had been roughly the same.

Perfect Corp. develops AI and AR solutions for the beauty and fashion industries, catering to both brands and retail consumers. For the latter, it offers several apps under the YouCam brand to virtually try on different hairstyles and makeup, or change clothes in photos. In 2023, Forbes dubbed Perfect Corp. founder Alice Chang the “godmother of virtual makeup” for this technology.

For brands, the company offers access to its technologies, which provide cosmetics recommendations, virtual skin diagnostics, and eyewear try-ons, among other things.

The company dominates its niche: It serves over 400 of the world's largest cosmetics brands, and its apps have been downloaded by retail customers more than a billion times, as noted by Zacks Small-Cap Research last year.

Perfect Corp. stock is down almost 35% for the year to date and off nearly 23% over the last 12 months.

According to MarketWatch, out of the three analysts who cover Perfect Corp., two rate it a “buy,” while one has it as a “hold.” Their average target price of $4.13 per share suggests upside of more than 124%