OYO increases loss, looks to scale

OYO Hotels & Homes said that its focus was to maintain strong brand preference “while ensuring we have a clear path to profitability”.

The comments were made as the group announced that it had increased its loss from 25% in 2018 to 35% in 2019, as a result of international expansion, which it has since scaled back.

OYO reported 4.5 times year-on-year revenue growth to $951m for 2019, with standalone losses in India standalone improving from 24% in 2018 to 14% in 2019. India contributes to 63.5% of revenue.

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Abhishek Gupta, global CFO, OYO Hotels & Homes, said: “As we work towards consistently improving our financial performance, ensuring strong yet sustainable growth, high operational and
 service excellence and a clear path to profitability will be our key to our approach in 2020 and beyond. The company’s increased focus on corporate governance and building a high-performing and employee-first work culture will also drive this next phase of sustainable growth for us. We look forward to adding value to the experience of travellers and asset partners across the globe.”

The company said that its business was in three stages. In mature markets like India, where OYO was in the third stage of its growth journey, the focus of the company was to maintain strong brand preference “while ensuring we have a clear path to profitability, enabled by accretive growth, operational excellence, and strong gross margin”.

In markets like China, where the company was in the second stage of its journey and had achieved scale and presence, the focus was on creating a strong brand resonance and ensuring improved gross margin, for the value proposition OYO brings in while continuing to invest in accretive growth. In markets like the US or Japan, where OYO was less than a year old, the focus was on building scale and presence.

Last month OYO told us: “As OYO enters 2020, we are taking steps to optimise and strengthen our business. That includes balancing the speed of our expansion with our operational capabilities, ensuring our growth is sustainable and maintains our commitment to excellence across the board.

“As a result, we have begun a process of reorganisation, driving synergies across our business lines and removing duplication of efforts in some of our processes. This has not been an easy decision for us and we are doing everything we can to ensure that our outgoing colleagues receive as much assistance and support as possible throughout this process. We are proud of the hard work, dedication and passion of every OYOpreneur who has helped us to achieve our goals.’’

January saw OYO founder Ritesh Agarwal tell employees that the company would try to ensure that growth was “sustainable” after announcing redundancies across the group, which is thought to be preparing for an IPO.

Agarwal made the comments in an email to employees after a series of newspaper articles describing job losses of up to 1,200 in India – 10% of the total staff –  and 500 job losses in China, blaming the group’s rapid expansion.

He said: “Growing at the pace at which OYO has in the past few years, we sometimes went ahead of ourselves and pressure-tested our organisation at multiple levels. This year, we are taking steps to address this.”

The founder said that OYO would now look to “sustainable growth” which would balance speed with operational capabilities, in addition to focusing on core businesses and profitable locations and avoiding “growth that dilutes our margins”.

Agarwal said: “One of the implications of the new strategic objectives for 2020, is that, like the leadership team, we will reorganise more teams across businesses and functions. And this means that, unfortunately, some roles at OYO will become redundant as we further drive tech-enabled synergy, enhanced efficiency and remove duplication of effort across businesses or geographies. As a result, we are asking some of our impacted colleagues to move to a new career outside of OYO.”

December saw the company promote Aditya Ghosh to its board of directors, as it underlined plans to set new standards of corporate governance and build a sustainable business at scale. Ghosh joined the company from IndiGo Airlines where he was president, overseeing the group’s IPO, driving speculation that OYO was preparing for an IPO.

 
Insight: It’s not quite ‘grab a bucket and start bailing out’ time at OYO, but there’s a certain amount of shoring up the creaking ship. And that’s before you consider the coronavirus, which is making its presence felt in the China business.

Last week saw OYO backer SoftBank’s third-quarter results and chairman & CEO Masayoshi Son said: “The number of hotels, number of memberships, number of people stayed are increasing constantly. That’s the reality and performance is making a good growth. That’s how I see them.”

When asked what role SoftBank’s investment was playing in the growth at OYO, which has been known to make revenue guarantees in some territories, Son said: “Money can be very useful and if we cannot use such a possibility well that can be a harm. Whatever the battle was, whatever the revolution was, money was necessary. So if you can use wisely you can create a great revolution with great size and you can increase the ratio of success.”

The jury remains out as to whether OYO is a revolution in the hotel sector, or whether it is a brand which was well-placed in India but is destined to remain only a domestic concern. Observers suspect that its growth in overseas is a mirage, with the truth revealed when the funding is pulled. At the moment, SoftBank, which needs a win after WeWork, is not turning off the spigot, although it doesn’t have a limitless supply of the readies. The group could yet end up face down on the sand.