By Lee Kah Whye
Singapore, Dec 2 (ANI): A filing with India's Ministry of Corporate Affairs last week revealed that burgeoning hospitality chain OYO Rooms (also known as OYO Homes & Hotels) is not expected to be profitable until 2022.
Reuters reported that the filing showed the Gurgaon-based company suffered losses that were six times higher in the financial year ending March 2019 compared to the prior year. The good news is that revenue grew more than four times and it now claims to be the world's largest hospitality brand by room count. OYO cited its rapid expansion especially its aggressive moves into markets like China, the United States and the United Kingdom as the main reason for the losses. China is OYO's biggest market by room count and the company says it is the country's biggest hotel chain.
Based on the unaudited filing, OYO reported a net loss of USD 333 million (23.85 billion rupees) in the fiscal year which ended 2019, compared with a loss of 3.6 billion rupees a year earlier. Operational revenue swelled to 64.57 billion rupees from about 14.13 billion rupees for the comparable period the previous year.
Softbank through its Vision Fund has invested about USD1 billion in OYO and its stake in the company stands at about 50 percent. Poor performance of this venture capital fund was cited as the main reason for Softbank reporting its first quarterly loss in 14 years of USD8.9 billion in the second quarter which ended September 2019.
Following the listing debacle of office-rental firm WeWork, Softbank is expected to be more cautious in handling OYO especially with uncertain profitability of companies it has backed like Uber and Flipkart.
About 85 per cent of the USD 100 billion Vision Fund which was launched in 2017 has been invested. A Vision Fund 2 is being planned with the same aim "to facilitate the continued acceleration of the AI revolution through investment in market-leading, tech-enabled growth companies". Sources told CNBC that SoftBank CEO Masayoshi Son plans to target companies with clearer and quicker paths to profitability and potential public offerings. The pace of future investments is also expected to be slower.
OYO, valued at US$10 billion, partners independent budget hotels, integrates them into its digital platform to manage their businesses and helps them grow. This in return for a fee based on room revenue. Guests who book their rooms with OYO are guaranteed a consistent level of service and common amenities anywhere in the world. Franchisees also benefit through its financial knowhow, technology, operational and design capabilities, and training that help the properties elevate their customer service and guest experience, ultimately resulting in increased occupancy and profitability.
In November, OYO announced that it has invested heavily into Southeast Asia with the launch of 250 branded hotels in Thailand as well as an investment of some USD300 million into Indonesia. It sees Southeast Asia as a market that will grow in its importance for the firm. According to market research firm, Phocuswright, the Southeast Asian budget accommodation market is worth USD17 billion at the moment and will rise to USD20 billion by 2023.
However, it faces stiff competition from three Singapore-based start-ups, RedDoorz, ZEN Rooms and Zuzu Hospitality Solutions. All of them follow the same business model that was pioneered by OYO.
RedDoorz was founded in 2015 by Delhi-native Amit Saberwal, who is also its CEO. Saberwal was previously Chief Business Officer at MakeMyTrip.com. It claims to be the fastest-growing chain of budget hotels in Southeast Asia. As of October, it has 1,500 hotels with presence in over a hundred cities in Indonesia, 15 cities in the Philippines, five in Vietnam and in Singapore. The company is actively looking into adding Thailand and Malaysia hotels to its network.
Backed by private equity from Asia Partners as well as investments from Japan's Rakuten Capital and Mirae Asset-Naver Asia Growth Fund, Qiming Venture Partners, World Bank Groups investment arm IFC, 500 Startups, and Jungle Venture among others, it has raised USD140 million so far.
Saberwal said in a press briefing in October that it plans to list in 2023. Before that, he expects its revenues to have reach USD500 million, for it to be managing 15,000 hotels in Southeast Asia and for the company to be profitable.
Another emerging hospitality startup in Southeast Asia is ZEN Rooms. It is co-founded by Nathan Boublil. It has a network of hotels in 50 cities covering five countries in Southeast Asia - Singapore, Malaysia, Indonesia, Philippines and Thailand. It has over 13,000 rooms at present and has grown some 400 per cent since mid-2018. As of June 2019, it has become the largest hotel chain in the Philippines with 5,500 rooms under franchise.
It is backed by Korea's number one travel group Yanolja, Booking Holdings as well as Rocket Internet and according to Crunchbase has raised about USD23 million so far.
Similar fellow early-stage hospitality startup, Zuzu Hospitality Solutions currently has over 1,000 independent hotels from Indonesia, Malaysia, Thailand, Singapore, Australia and Taiwan in its fold. It has so far raised close to USD6 million to fuel its expansion plan to scale up in these six markets.
Zuzu was co-founded in 2016 by Dan Lynn and Vikram Malhi who both used to work at American global travel company Expedia.
Zuzu'shospitality solution model is focussed solely on helping the independent hoteliers manage their presence in distribution channels like OTAs (Online Travel Agents), driving traffic, content, and promotion. Malhi says that the startup is agnostic of the OTA models. He added, "hotel owners are not good at fixing prices, and this is where we come in."
Although it is estimated that there are up to 100,000 independent hotels operating in Southeast Asia, competition is stiff among those operating in this space. Consolidation is inevitable. Already there are rumours in the market which started last year about the possibility of OYO buying ZEN. It has already been noted that none of these startups are profitable nor are they expected to be for some time. Whoever survives will have to have strong sponsors and deep pockets. (ANI)