India’s Oyo Hotel Startup to Target $9 Billion Valuation in IPO

India’s once-highflying hotel operator and tech provider Oyo is poised to execute an initial public offering in India in the next week or two at a valuation in the $9 billion range.

That valuation, although diminished from the $10 billion to $12 billion range it signaled when filing its IPO paperwork in India five months ago, isn’t a shock because Microsoft invested a tiny $5 million in Oyo in September at a $9.6 billion valuation.

You can say this about Oyo — it seems to have survived the pandemic so far, although its footprint and model have vastly changed. To be sure, founder and CEO Ritesh Agarwal hyped the Softbank-backed company and advocated growth above all else pre-pandemic, but the hospitality brand and booking site was reeling even before scientists discovered Covid 19.

Oyo has fired thousands of employees, abandoned its revenue-guarantee model to hotel operators it contracts with, seen thousands of properties shuttered, and recalibrated its priority markets to India, Southeast Asia, and Europe, trimming operations in China and the U.S. The company’s reputation suffered along the way with some operators complaining about missed payments, and Oyo-built technology that didn’t work.

Oyo has made commitments to fix its tech shortcoming.

Dan Wasiolek, a Morningstar analyst, thinks Oyo’s proposed valuation isn’t too shabby after all.

“Compared to even a few months ago, the appetite for unprofitable growth companies has waned recently with interest rate expectations increasing,” Wasiolek said. “According to PitchBook, which is owned by Morningstar, Oyo produced a net loss of $343 million and $286 million in the March ending fiscal years of 2019 and 2020, respectively. While, Oyo may have missed its optimal IPO window, a target valuation of $9 billion would still represent a healthy 10 times March 2019 $946 million in revenue, according to PitchBook data.”

Tom Magnuson, co-founder and CEO of UK-based Magnuson Hotels, said one of Oyo’s challenges is to improve its relationships with hotel owners, adding one can’t build hotel relationships “like scaling up LinkedIn members.”

A Silicon Valley-like approach to adding hotels won’t work, he said.

“Sustainability is really going to require a very hands-on local marketing and intensive support relationship with each owner,” Magnuson said. “And less so a higher-leveled scaled approach.”

After approval from the Securities and Exchange Board of India, Oyo, according to a Bloomberg story, could soon thereafter mount a road show and go public in the next week or two.

Softbank, Bloomberg reported, has a 47 percent stake in Oyo and would sell some shares and founder Agarwal would retain his grip on more than 30 percent of the shares.

Pricing would be determined after the road show.