GlobalData: OYO Downsizing Highlights Risk with Rapid Growth

INTERNATIONAL REPORT—Following the news that OYO’s growth strategy is currently being re-evaluated due to questions surrounding its ability to become profitable. Ralph Hollister, analyst, travel & tourism at GlobalData, offered his view on the situation:

“After what seemed to be a meteoric rise for OYO in the lodging sector, the company will now be laying off 15-20% of its employees in India and South Asia. OYO CEO Ritesh Agarwal hinted that this step has been taken to drive ‘tech-enabled synergy,’ but it is likely that the change in strategy is spurred by the increasing pressure from Softbank to show profitability as soon as possible,” he said.

OYO has expanded its presence in the U.S. with more than 200 buildings in more than 60 cities, including Dallas, Houston, Atlanta, Seattle and Miami.

In an interview with Hotel Business, Agarwal said that OYO has definite plans to soon expand its presence to New York, Los Angeles and San Francisco.

“The focus for 2020 is going to be on ensuring we create great value for our asset owners and, more importantly, focus on delivering a good, quality customer experience,” he said.

Hollister continued, “It is common for companies in the tourism industry to change strategy due to changes in the micro and macro-economic environment. Because of the company’s aggressive expansion into a range of markets such as the U.S. and U.K., it is now more difficult for the unicorn to scale back operations and focus primarily on core markets such as India.

“Significantly reducing staff numbers provides a short-term fix to improve profit margins,” he said. “More importantly, however, the company’s core business model needs to be scrutinized to evaluate its ongoing viability. Attempting to standardize low-cost accommodation in a range of source markets is proving a difficult challenge to overcome. Softbank—a major investor in OYO—is gaining a reputation for encouraging rapid growth strategies. The situation bears resemblance to that of WeWork, another company which was heavily backed by Softbank and which recently hit the headlines after aborting a planned IPO.”