Hotel startup Oyo is making a significant reduction in its workforce, as it looks to cut costs amid investor scepticism about its headlong expansion and the outbreak of Covid-19 in China, its second-largest market.
Oyo is cutting 5,000 jobs in India, the US, China and Japan, with the most reductions in China, two people familiar with the matter said on condition of anonymity. The number includes 1,200 people in India, who were fired in phases between December and February.
The job cuts at Oyo were earlier reported by Bloomberg, which cited an interview with chief executive Ritesh Agarwal. According to Bloomberg, Oyo will now employ about 25,000 people.
Oyo declined to comment on queries sent by Mint.
The job cuts, the heaviest by an Indian unicorn in recent years, are the latest sign of trouble at Oyo.
The company’s valuation had soared to $10 billion late last year from $850 million in September 2017 on the back of a market grab in India that decimated rivals and an expansion spree in international markets, including China and the US. The expansion, largely funded by SoftBank, led to deep losses. Though revenue jumped to $951 million in 2018-19 from $211 million in the previous year, losses swelled to around $335 million in the same year from $44 million in FY18.
These numbers didn’t come as a shock to Oyo investors, but in the post-WeWork environment, Oyo has been forced to change course. Rather than continuing with the market-grab strategy, the company is now looking to increase occupancy rates, cut loss-making properties and prove that its business model can yield profits.
Oyo has also faced a deluge of complaints from hotel partners in India, some of which have claimed that the firm has delayed payments and reneged on promises. In December, Oyo replaced Aditya Ghosh, CEO of its Indian and South Asia business, with Rohit Kapoor, a former McKinsey partner who had joined the company in 2018. Ghosh joined the board of directors at Oyo. Though Oyo portrayed Ghosh’s move as an elevation, it was clear that his one-year tenure had been a disappointment.
The company is also facing an antitrust probe in India over its exclusive partnership with Makemytrip that allegedly breaks competition rules.
Oyo’s troubles mirror the problems of its largest investor, SoftBank. After WeWork’s stalled public share sale and the disappointing market debut of Uber last year, SoftBank has been widely criticized for its freewheeling investment strategy. The Japanese firm is struggling to raise its second Vision Fund.
SoftBank’s troubles have raised questions about Oyo’s ability to secure additional capital at its present valuation of $10 billion or higher.
“Oyo will certainly need to raise more capital within a year," an investor familiar with Oyo’s plans said on condition of anonymity. “If SoftBank isn’t able to put more money, they will have to accept a big down round." Down round refers to a subsequent funding round that occurs at a lower valuation than a firm’s previous fundraise.
Oyo’s future in China looks especially bleak. Its job cuts there have been triggered by the virus outbreak, but the company has had a tough time there from the start. Though Oyo established itself as the second-largest hotel chain in China last year with 9,000 properties, the firm faced rampant fraud across its properties as it lacked controls and processes. To clamp down on fraud and raise occupancy rates, Oyo had to launch a new model called Oyo 2.0 in May 2019 for its China hotel suppliers.