Oyo’s Widening Losses Until 2022

Main Photo: The Oyo Collection Hotel, Morjim, Goa, India

Date: December 2019

Location: China, India, USA and the world!

Name: Oyo Hotels & Homes (Oyo Rooms)

No. of Keys: 450,000 at last count!

Owner: Oyo disclosed fresh details about its financial performance as the hospitality company continues its breakneck expansion while experiencing a rapid acceleration of losses in the three months through June 2019, according to newly released financial documents.

The filings were related to Oyo’s $1.5 billion in series F funding led by SoftBank Group. The information fills in some missing details that weren’t available in October, when Skift Research published a definitive look into how Oyo operates.

In the year through March 2019, the India-based company stated it suffered a net loss of $332 million on revenue of $900 million. But the financial filings also revealed details on the company’s accelerating losses, how operations in China account for approximately 40 percent of its losses worldwide, and that early investors in the company aren’t participating in the latest round, which placed a $6.5 billion valuation on the company.

The documents predict that Oyo will make a profit in its India and China operations starting around 2022. But the historical data it published pointed to an alarming trend in its business model.

Overall, Oyo reported a net loss of 23.85 billion rupees ($332 million) in the year to March 2019, compared with a loss of 3.6 billion rupees a year earlier, according to the valuation report filed with India’s ministry of corporate affairs. Revenue from operations surged to 64.57 billion rupees ($900 million) from about 14.13 billion rupees a year earlier.

“You would want to be cautious about extrapolating one quarter’s margin to a forward full-year projection because of seasonality, yet the losses are still notable,” said Seth Borko, Skift senior research analyst who authored the Skift Research report on Oyo.

In other words, during the three months through June, Oyo spent more money opening spaces and marketing them than it did generating income from them.

The losses highlight rapid expansion by Oyo into China, the United States, the United Kingdom and other markets, which has made the six-year-old startup one of the world’s biggest hospitality brands by room count.

A valuation report filed with local regulators showed “management certified” financial projections for each of Oyo’s markets including its mainstay India and China units.

Oyo’s India business will likely make losses until 2021, after which it could report a net profit after tax of $45.2 million in 2022, which could expand by nearly 13 times to $586.9 million in two years, the projections showed.

An Oyo spokeswoman had no immediate comment on the projections and it was not immediately clear when the projections were made.

Oyo said in a statement the report contained only “certain provisional financials” for the year ending March 2019. “These are not the final audited financials and the same will be issued later by the company along with the annual report that we issue every year.”

“It may be pointed out that the valuation parameters such as share prices are based on fair market value and are not reflective of the share premium price. We would like to clarify again that these are not the final audited financials and the same will be issued later by the company along with the annual report that we issue every year and file with the RoC as well.” added an OYO spokesperson.

THPT Comment: Can the mighty SoftBank cope with another WeWork…much as we at THPT admire the young Ritesh and his disrupting plans to shake up the independent (and budget) hotel sector, we have, for some months now, cautioned against the breakneck speed and multi-directions the company is taking.

First Seen: Skift  and Reuters

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