WeWork's implosion is putting pressure on all of SoftBank's investments, Oyo included. If it's not changing course already, the budget hotel chain may soon have to decide whether, as CEO Ritesh Agarwal put it, to grow fast or grow right.
Despite the comeuppance of SoftBank-backed stablemate WeWork and dissent among hotel associations and some property owners in the United States and India, Oyo’s founder and CEO Ritesh Agarwal said there have been no recommendations or orders from the Japanese investment giant or other shareholders about changing strategy or business practices.
SoftBank has invested more than $1.5 billion in Oyo, according to Skift Research estimates.
“We have received no such advice/directive from SoftBank or any of our investors,” Agarwal told Skift. He said the only guidance from shareholders has been to make good on the budget hotel chain’s business plan.
“We work closely with all our board members, including SoftBank Vision Fund’s Munish Varma (SoftBank’s managing partner for Europe, Middle East and Africa, and Asia),” Agarwal said. “He has always encouraged us to focus on delivering on what we agreed to deliver in our operating plans, and as long as we are doing that, he is good.”
On the heels of the WeWork debacle, which saw its proposed initial public offering withdrawn, valuation plummet, and CEO Adam Neumann sacked, this supposed lack of interference in Oyo’s strategy from SoftBank and other shareholders comes despite reports that SoftBank is introducing governance changes among its holdings. These include limits on the size of a founder’s or management’s stake in portfolio companies at the time of a public offering or other liquidity events.
Why Agarwal Is Increasing His Stake
Skift Research estimates that Agarwal would own around a 26 percent stake, up from the current 9 percent, when he closes on a deal to purchase $2 billion worth of Oyo shares, and would be the chain’s second largest shareholder. SoftBank, which would continue to be Oyo’s largest shareholder with a 46 percent slice of the company, is reportedly underwriting the loan to the Oyo founder.
Agarwal said since Oyo’s early days until now, he has been “all-in” on the hotel chain’s mission. “I have never sold a share and don’t intend to do it either,” he said. “I wanted to do this many years back but had to wait till I have the resources to be able to exercise.”
Oyo will benefit from a primary injection of some $1.5 billion in funding “to support our mission, enabled by me and other shareholders,” Agarwal said.
“Unlike the situation with other companies, we are already a company that is focused on its mission while at the same time fully cognizant of its fiduciary responsibility to deliver value to the shareholders,” said Agarwal, who responded to Skift’s questions via email October 31.
Agarwal, who founded the company in India in 2013 with the mission to provide “a better lifestyle for the common man” and to upgrade standards at India’s scattershot two-star hotels, said the WeWork situation, as well as criticism from partners in India and the United States, provides the chance to enhance the business.
“Every big global development is an opportunity to learn and improve,” he said. “We have viewed these as opportunities to learn — from each of them — and will continue to do so. However, our focus has and will always continue to be on creating impact and delivering against our goals.”
CEO Believes the Basics Don’t Need to Change
Agarwal defended Oyo’s business model, which includes revenue guarantees for property owners in exchange for handing over virtually all revenue management and distribution responsibilities to headquarters.
“While a handful of owners in the U.S. have raised concerns over some teething issues, it is important to note that no one can deny the occupancy jump and the related improvement in RevPAR (revenue per available room) that Oyo can bring,” he said, adding that Oyo only launched in the country a few months ago. “A yield guarantee helps owners trust Oyo’s value proposition, and for Oyo, an agreement based on a yield guarantee at a higher margin is always a win-win situation given our confidence in our competencies.”
Some critics have suggested that Oyo’s infrastructure can’t keep up with the pace of its growth, with its room count now at about 1.2 million, according to the chain.
“I am also very clear that if I need to make a choice at some point, it will always be about growing right versus growing fast,” Agarwal said.
In the wake of blowback based on the performance of WeWork and fellow SoftBank portfolio company Uber, which is piling up losses, Oyo’s growth plans do not include selecting a stock symbol anytime soon.
Agarwal said Oyo has been issuing a financial performance report and guidance every year and has cut its losses “by almost 50 percent year over year.”
“Lastly, we are a well-run company, and we have no immediate plans for an IPO so the scenario is different for us,” he said.
Oyo clearly doesn’t want to be tarred unfairly with a WeWork brush.
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Photo credit: OYO 143 The K9 Central Hotel, Ho Chi Minh City, Vietnam. CEO Ritesh Agarwal said the company's business plan remains on course. Oyo Hotels and Homes