OYO is currently the most important startup in India, if not the world.
For one thing, the budget hospitality startup is currently the great white hope for SoftBank and its $100 billion Vision Fund, the biggest and most influential VC in the world. If SoftBank’s “crown jewel” turns out to be a lump of coal, the fund can all but kiss its chances of raising the second Vision Fund—which is already struggling to get off the ground—goodbye.
For another, OYO is India’s second-largest startup in terms of valuation. If OYO flames out, the seismic repercussions on startup funding in India will reverberate for years.
So why are we discussing this now?
Because OYO is currently facing the unenviable position of having to fight the “Battle of the Bulge”.
History aficionados will recognise the Battle of the Bulge as an iconic “last-stand” battle during World War 2—one last desperate offensive campaign that Germany launched to avert what seemed like inevitable defeat. OYO’s current predicament is something similar. The last year has been annus horribilis for OYO. It saw widely-publicised problems around dissatisfied hotel partners and disgruntled customers culminating in a purge where nearly 20% of the company’s 12,000-strong workforce in India was laid off. There were similar layoffs across its other group entities around the world. OYO now needs to win a last-ditch battle to prevent these eddies from cascading into a deluge that takes the company under.
But OYO has another “bulge” problem—the bulge of the wallet kind. A large part of OYO’s mercurial growth can be attributed to the enormous sums of money raised from its financial backers, most notably SoftBank (which owns nearly 50% of the company). Post the chastening that SoftBank received during the WeWork IPO imbroglio, the halcyon days of bottomless pits of capital were given a quiet burial. Like other SoftBank portfolio firms throughout the world, OYO has discovered that even a seemingly infinite $100 billion fund has limits. Instead, it has been forced to abandon its “grow-at-all-costs” mantra to build a “sustainable path towards profitability”.
The stakes are high. Can OYO conceivably progress towards this holy grail of profitability?
OYO’s recently released audited financials for the year ended March 2019 is a good starting point to help answer this question.
The sum of its parts
The headline numbers make for dire reading.
According to OYO’s latest results, its consolidated revenue stood at $951 million in the year ended March 2019, compared to $211 million in the previous year. While this 4.5X increase in revenue might seem impressive, it pales in comparison with the net loss—a whopping 7X increase to $335 million in the same period, compared to $44 million the prior year.