Skift Take

Oyo appears to be taking its once-explosive global expansion strategy down a few notches, and that could be a good thing for the young company in the face of still-uncertain impacts from the coronavirus and the reputational damage it recently suffered. These losses aren't pretty.

Losses for Oyo Hotels & Homes surged to $335 million in fiscal year 2019 compared to $50 million in red ink the year before, as the fast-growing budget hotel chain has been forced to pull back on its sweeping global growth strategy.

Overall, the India-based hospitality startup likely posted net revenue of $250-$310 million, according to a Skift Research estimate, in fiscal year 2019, which ended March 31, 2019. That’s an increase of roughly 265 to 350 percent compared with the year-earlier period.

On the other hand, Oyo executives said the company is seeing marked improvement in its business operations in India, deemed a mature market.

India contributed around 64 percent, or $160-$198 million of Oyo’s net revenue in fiscal year 2019. In the same fiscal year, Oyo’s net loss in India fell to 14 percent of gross revenue, or $83 million, from 24 percent a year earlier, on the back of better operating efficiency, the company reported.

China — where Oyo had aggressively expanded into during the last fiscal year — and other international markets that were in development and investment mode contributed to 75 percent of the FY2019 losses of $252 million.

“In FY2019, Oyo had a primary presence in China and India. The inherent costs of establishing new markets, including those related to talent, market entry, operational expenses, among others, resulted in an increase in Oyo’s net loss percentage in the near term, which grew from 25 percent in FY2018 to 35 percent of revenue in FY2019 to $335 million,” Abhishek Gupta, global chief financial officer of Oyo Hotels & Homes, said in a press statement. Note: Gupta’s reference to “revenue” is roughly akin to what is commonly known as gross bookings.

What’s more, it is still premature to quantify the impacts of the “ever-developing” coronavirus situation on its revenue or expansion projections in China and the region, Aditya Ghosh, a member of the board of directors at Oyo, said in a media conference call Monday.

“There could be some impacts in the short term although it’s too early to say what,” he added. “China is building up as a strong market for us, and we expect losses to decline in China (as) we push on the path to profitability.”

On the other hand, Oyo executives said the company is seeing marked improvement in its business operations in India, deemed a mature market.

Meanwhile, fiscal year 2019 was deemed “a good year” for Southeast Asia, where Oyo is seeing “improved gross margins” across its nearly 100,000 rooms across 300 cities, spanning Indonesia, Malaysia, Vietnam, the Philippines, and Thailand, added Ghosh.

Asked if the dismal quarterly performance of its major investor SoftBank Group or the severe backlash on its reputation in recent months would affect its expansion plans, Ghosh insisted that “a lot of hard work” has been made on its part to “build trust.”

Such measures, he added, include the company’s heightened focus on corporate governance with recent key senior appointments as well as constant engagement with asset partners to gather their feedback through the Oyo Partner Engagement Network.

Correction: Skift Research estimated that Oyo notched some $250-$310 million in global net revenue in fiscal year 2019, which ended March 31, 2019. We originally reported Oyo’s reported revenue number as $951 million, but Oyo changed its accounting methods as of April 2018, and that $951 million actually approximates gross bookings, not net revenue. Skift Research originally estimated that Oyo earned $190 million in revenue based on a take rate that was lower than what we now believe.


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Tags: asia, china, india, oyo, softbank

Photo credit: India and China make up the two biggest markets for Oyo. Skift

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