Oyo plans job cuts amid worries over aggressive expansion plan3 min read . Updated: 20 Dec 2019, 11:25 PM IST
- Layoffs in India to help reduce costs ahead of an expected slowdown in funding for internet companies
- The development comes amid analysts and investors questioning Oyo’s loss-making model
In the past month, homegrown hotel startup Oyo has replaced the chief executive officer of its new real estate business, received a host of complaints from hotel partners and witnessed the exit of a joint venture partner in the home market of its largest investor, SoftBank.
Now, Oyo plans to cut jobs in India to reduce costs ahead of an expected slowdown in funding for internet companies, one person familiar with the matter said, requesting anonymity.
The Economic Times reported on Thursday that Oyo may lay off about 2,000 employees by the end of January, citing people close to the company. An employee, who was recently laid off, said, requesting anonymity, that the startup let go off at least 1,000 employees in early November.
However, responding to Mint’s queries, an Oyo spokesperson said, “The numbers will be 250-500, including the ones that will be given other opportunities to explore within the company… With Rohit taking over as the CEO for the India SA operations across businesses, we have re-evaluated the performance of several employees in select teams and, based on the performance, and the individual’s interests, we may replace some individuals after giving them the opportunity to go through a performance improvement programme," he added.
The development comes amid analysts and investors questioning Oyo’s loss-making business model and aggressive expansion plans.
Over the past two years, Oyo has spent hundreds of millions of dollars buying hotels in the US and Europe, and has established itself as the second-largest hotel chain in China. In its home market, Oyo had established near-complete dominance, leaving rivals Treebo and Fab Hotels far behind.
This stunning expansion spree was financed by a fund-raising binge of $2.5 billion since September 2017. Its valuation has soared to $10 billion from $850 million during the period, even as consumer internet startups across the world benefitted from a funding boom led by SoftBank.
But public markets have put the brakes on this funding binge. Office-sharing startup WeWork Companies Inc. had to abandon its listing plan after a disappointing reception from public investors, and subsequently fire its CEO and beg for emergency financing to stay afloat. While Uber Technologies Inc., which is the world’s most valuable private internet firm, has seen its shares plunge following its stock market debut in the US in May.
In turn, Japanese technology and investment company SoftBank, which is the largest investor in WeWork and Uber, is facing hurdles in raising its second $100-billion fund.
This has prompted a reckoning for Oyo and many of its other portfolio companies in India and across the world.
SoftBank was the primary backer of Oyo’s international expansion. SoftBank founder Masayoshi Son used his network to arrange for Oyo’s entry and expansion in China. Son also facilitated Oyo’s joint venture with Yahoo Japan, which counts SoftBank as a shareholder.
In November, Yahoo Japan exited the joint venture, selling its 33-34% stake in Oyo Technology and Hospitality Japan to Oyo. The Nikkei reported that Oyo Japan, which leases vacant homes, had received “multiple complaints from owners about contract issues".
Analysts and industry experts from the hospitality segment said that in India, the market opportunity is around 100,000 hotels and boarding lodges, but it’s difficult to own a two-digit market as an online player.
“If you are looking to build a credible (online hotel) brand and not another online travel aggregator service, then you can probably go up till 5-7% market share in this business (branded hotel segment)," said a founder of a hospitality startup, requesting anonymity, adding that a brand may not be able to retain consistency in its service quality beyond the 5-7% of the market, and may start losing its “unique identity" and its brand recall.