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OYO on cash runway, IPO and renewed focus on hotels, holiday homes biz

OYO on cash runway, IPO and renewed focus on hotels, holiday homes biz
Photo Credit: VCCircle
2 Dec, 2020

Ritesh Agarwal, founder of budget hospitality startup OYO, on Friday said that the company, including its joint ventures and businesses, holds nearly a billion dollars in cash runway.

The 27-year-old entrepreneur made the statement at a fireside chat with OYO board director Troy Alstead and India-South Asia head Rohit Kapoor. TechCircle has reviewed a copy of the discussion transcript.

The comment comes at a time when the Gurugram headquartered business is recovering the revenue lost due to the Covid-19 pandemic. The fall in business was followed by continued workforce cuts across heavily expanded operations in the United States, Europe and Asia.

On OYO’s public listing plans, Agarwal said that the company has seen a strong recovery over the past few months, and that the management was focused on ensuring a well-designed, IPO-ready company to allow shareholders and board members to make a decision.

“And we will look at various things like market situations, opportunities outside and so on -- that the board will consider and then potentially help advise on the timeline,” Agarwal said.

The company is en route to wrapping up its phase-wise reversal of company-level pay cuts by December. “I am again very thankful for Troy to enable ownership in the form of RSUs for the salary cuts… for instance, a lot of places where people have ESOPs at higher strike prices, Troy and team actually worked very hard to make sure that a reasonable number of them could be made into RSU,” Agarwal said.

Alstead, former Starbucks COO and founder of Ocean5, joined OYO about seven months ago. He also chairs the board’s compensation committee. In the fireside chat, with a target audience of OYO employees across geographies, Alstead thanked 2,000 members for attending.

“OYO is focusing heavily on that partner experience in the end customer experience in the guest experience in hotels. In China, it's been a great opportunity to learn and adjust the cost structure, adjust the supply numbers of the rooms that aren't as big as they were earlier,” Alstead said. 

Agarwal added that, globally, OYO has achieved around 85% of the gross margin dollars of its pre-Covid levels of business. “OYO Vacation Homes increasingly became a very critical part of our business… This year, what we saw in Europe was that hotels did not get filled up as much. But little hotels or holiday homes got completely packed up much more than what we've ever seen in our history,” he said.

OYO’s business in Europe is called OYO Vacation Homes (OVH).

Agarwal said that OYO decided in March that it would focus on two core businesses -- hotels and holiday homes. OVH, he said, manages about 4,00,000 rooms, including all its brands in Europe.

“OVH was unit economics positive even during the pandemic with Denmark, Norway and Sweden leading the recovery. However, the recent lockdown in Europe has slowed things down again. They've (OYO) been saying billion dollars (in cash runway) since the start of pandemic. Also, the only marketing generating revenue was Europe and now that has also gone down to negative due to lockdown again,” a former employee told TechCircle on the condition of anonymity.

Many of OYO’s top talents have moved on, collapsing the company’s workforce, the former employee at the firm’s European business, told TechCircle.

On business recovery in India, OYO’s largest market, India-South Asia head Kapoor said OYO Hotels & Homes has seen a 30% month-on-month growth from August.

“And we are back to about 40-45% of our used room nights in India. But the good news is our gross margins are back to more than where they used to be because of the way we have redesigned the P&L of the company completely… Weddingz will almost do a 5X number this month, compared to what was the last month,” Kapoor said.

OYO’s franchise business in January used to be a complete postpaid model, Kapoor said, which was a big problem because recoveries in collections, in the hospitality business, is tough. “Today, we stand at almost 90% prepaid model for partners.”

The model has also been adopted by other business units, including Frontier and OYO Life. 

Frontier is the vertical that comprises OYO Townhouse, Collection O, OYO Life and OYO Homes. OYO Life, the company’s fully managed housing rental unit, was a self operated business and has changed to complete revenue share and partner operated business, Kapoor said.