Losses widen at Masayoshi Son-backed Oyo

This article is co-written by Kenan Machado

Masayoshi Son-backed Oyo Hotels and Homes Monday said its losses widened amid an expansion into new markets.

For the financial year that ended in March of 2019, net loss at the Indian room aggregator widened to US$335 million from US$52 million a year earlier. Revenue grew a little more than four and a half times to US$951 million. Revenue at its home market of India stood at US$604 million.

Net loss as a percentage of revenue grew to 35% in fiscal 2019 from 25% a year earlier, Oyo said. Losses in its home market of India widened to US$83 million from US$50 million a year earlier. But as a percentage of revenue, they narrowed to 14% from 24% a year earlier, Oyo said.

Net loss as a percentage of revenue widened. Source: Oyo

“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,” the company said in an earnings release.

The latest development comes as investors fear a deja vu with Oyo. WeWork, another of Son’s big bets, had to shelf its plans for a listing due to multiple concerns expressed by investors over its financials and valuation. The US-based co-working startup struggled to sell shares at a valuation of US$10 billion. That prompted a pivot at SoftBank towards profitability at portfolio companies.

Oyo is restructuring its operations to pursue sustainable growth. In January, the company reportedly asked 600 of its employees in China and about 1,200 staff in India to leave. A couple of days later, another report said that Oyo had laid off about 360 US employees in a bid to take a more balanced approach to growth.

In Japan, Yahoo Japan reportedly canceled its apartment rental joint venture with Oyo last year. Oyo said it bought back the ownership earlier held by Yahoo Japan to “have oversight in the operations and ensure sustained growth,” adding that the Oyo Life business had made good progress.

Amid its mounting losses, Oyo in November last year received the go-ahead from its board to raise US$1.5 billion in investment from Japanese conglomerate SoftBank and RA Hospitality, which would push its valuation to about US$10 billion. In October 2019, it was reported that Oyo was looking to raise the same amount of money to fuel its growth in the US and Europe.

Towards profitability

“Yes, the focus is on profitable growth,” Rohit Kapoor, Oyo’s chief executive for India and South Asia, told reporters on a call. “Does that mean we will continue to grow? Absolutely. There is great demand for what we are trying to do out there,” he added.

Photo credit: Oyo

India contributed to nearly 64% of revenue as business expanded nearly threefold from a year earlier, Oyo said. Gross margins in the country rose to 14.7% in 2019 from 10.6%.

International expansion weighs