Is OYO going to be the next WeWork?
Soft bank affects on OYO.
Recently, OYO fired 1200 employees in India and 5% of employees in China after being aggressive in the market.
Now the question is, Unprofitable and aggressive, will Softbank-backed Indian hotel chain implode as WeWork did?
It might be a red flag for OYO.
In 2018-19, WeWork's revenue was $1.8 billion with a loss of $1.6 billion.
And In 2018-19, OYO's revenue was $900 Million with a loss of $336 Million.
With Rapidly increase losses, mounting concerns over profitability with none in sight, it is no small wonder why one could draw similarities to the coworking giant.
Softbank has valued OYO at $10 billion which more than 11 times of Revenue same like they did for WeWork.
OYO has been facing challenges from Hotels in India or US with continuous bad customer experience.
Oyo will face more legal struggles as more hoteliers allege that the company has been fraudulent and using unfair business practices. Protests have now erupted around the country against the platform, with owners upset about Oyo’s business dealings:
- Oyo gave no minimum guarantee. Initially, Oyo offered to pay for rooms even if it was unbooked for the night, which got many hotels on the platform at lightning speed. Without the minimum guarantee, hoteliers are now facing their biggest pain point. For small budget hotels, minimum guarantees are great for balance sheets. Problem was, protestors saw no such thing. Rather, Oyo deducted sums from their payments to hoteliers, citing penalties as a reason. At times, due to Oyo’s accounting and auditing process, some hotels find themselves owing money to Oyo at the end of the month.
- Oyo charged hidden fees. Were bookings done outside of its platform? Additional charge. If there was a complaint about the hotel? Additional charge. Oyo-conducted audit? Charge. Not hitting the minimum number of bookings for the minimum guarantee threshold? Hoteliers allege the Oyo will apply arbitrary charges to bring the fee down—typically at large sums. An example given was that a payment of US$3.5K will be reduced to a sum of US$1K.
Here’s my take.
Undoubtedly, Oyo is under fire from both the inside and outside: balance sheets and hoteliers are simply not cooperating with each other.
Monopolistic behaviour and alleged predatory business practices have turned many hoteliers away—should Oyo not address these concerns aptly, they’ll see more crime, complaints, and protests.
Regardless of how big your capital moat can be, losing one of your consumer brackets will tear any company apart. For Oyo, that’s the hoteliers.
Let’s not forget that though Oyo is compared to WeWork, Oyo does not have the money that WeWork had.