What SoftBank's US$700M valuation cut means for OYO, its investors, employees

With the venture-capital giant’s reported write-down, the hospitality startup’s narrative of a post-Covid rebound faces challenges ahead of its IPO

On 19 September, IPO-bound hospitality chain OYO filed an update to its draft red herring prospectus (DRHP) claiming to be Ebitda-positive as of the quarter ended June 2022

Unfortunately for OYO, this was followed by a cut in its valuation by its largest investor SoftBank to US$2.7 billion, a far cry from the US$9.6 billion that OYO commanded in 2021

While the company disputes the write-down, a closer look at its recovery from the pandemic versus listed peers and its stated business metrics highlight the rationale behind Softbank’s decision

But, even as the company moves to be a leaner and more prudent business, it faces the challenge of balancing profitability and growth to win back investors’ trust and justifying its expectations for the IPO

On 19 September, when OYO Hotels disclosed its results results SEBI Oravel Stays Limited – Addendum to the DRHP Read more for the quarter ended June 2022, it was supposed to be a celebratory affair. The Indian hospitality startup had just turned Ebitda Ebitda Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a widely used measure of core corporate profitability. -positive, signalling its readiness for its listing, expected expected Bloomberg SoftBank-Backed Oyo Seeks to Resurrect IPO as Growth Resumes Read more to be in January 2023.

Instead, things got gloomy within days, thanks to its largest investor, SoftBank Group Corp. The Japanese venture-capital giant reportedly reportedly The Mint Softbank cuts valuation of IPO-bound OYO to $2.7 billion Read more marked down the value of OYO—in which it holds 47%—to US$2.7 billion in the quarter ended June. This was 20% less than SoftBank’s earlier estimate and over 70% below the valuation at which OYO last raised funds a year ago.

The hotel-booking platform was valued at US$9.6 billion after an investment by tech giant Microsoft in September 2021, when it filed for its US$1.1-billion initial public offering (IPO). But, with a bearish sentiment gripping the stock market, there was speculation about its IPO being slashed slashed The Economic Times OYO may reduce IPO size, valuation may be readjusted too Read more by half or delayed further.

With the latest filings, the company seems to have reiterated its commitment to going public. However, the SoftBank write-down muddies the narrative OYO is trying to present before the share sale. In an update to its IPO filing earlier this month, the startup claimed to have become Ebitda-positive as per its Non-GAAP Non-GAAP Non-GAAP metrics are an alternative method used to measure the earnings of a company. Many companies report non-GAAP earnings in addition to their earnings as calculated through generally accepted accounting principles(GAAP). disclosures. These filings leave room for the management to exclude expenses or line items to suit their narrative.

Also, the company has refuted speculations speculations TechCrunch SoftBank cuts internal valuation of $10 billion Oyo to $2.7 billion Read more about valuation markdown, saying the reports are “patently incorrect”.

AUTHOR

Gaurav Tyagi

Gaurav covers the money trail around everything startups and internet economy. A graduate from the University of Delhi, he joined Institute of Chartered Accountants of India before finding his way to research and journalism. Apart from being a petrolhead, he pretends to be Ari Gold on weekends.

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AUTHOR

Aayush Agarwal

Aayush covers businesses that are primarily Internet for The Ken. In his previous stint at Goldman Sachs, he spent slightly more than a year analysing investment opportunities in the China Internet space. A science graduate, he completed his postgraduate from the Indian Institute of Management, Kozhikode. Write to him if, among other things, you wish to talk about e-businesses, journalism or just offbeat career choices.

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