Indian budget hospitality chain Oyo is weathering losses and criticism amid a coronavirus outbreak that has thrown global markets for a loop and put a damper on the company's plans for expansion.
"At this point of time, it's too early to predict what the business impact of that is," Oyo CEO Ritesh Agarwal told Cheddar. "Having said that, here at Oyo we're trying to make sure that we can keep as many hotels open as we can."
The 26-year-old Agarwal started the company in India after graduating from the Peter Thiel Fellowship program in 2011 and has since expanded throughout Southeast Asia, China, and the United States with the backing of SoftBank, which owns 46 percent of Oyo.
Many hoteliers were initially quick to sign on because the company guaranteed income, even if they weren't filling their rooms. While the company cut those payments, and in the process lost some clients, it struggled with cash flow even before the coronavirus outbreak. Now that the health crisis has slowed travel to areas where Oyo is highly-leveraged, it has created a new stress test.
Agarwal said that reservations dropped near the Hubei province in China, where the outbreak started, but that business has continued as usual in other parts of the country. The biggest hit came from the impact on the Chinese New Year, which Agarwal called the "biggest traveling time anywhere in human civilization" and a profit-driver for the entire hospitality industry.
The company had reported net losses of $335 million in the year ended that March 31, 2019, a six-fold increase over the prior year. It also laid off 2,000 employees in India and saw its expansion into Japan hobbled by labor disputes. Its benefactor, SoftBank, also saw profits fall 17 percent and the collapse of its Vision Fund.
Revenues nonetheless surged to $951 million from $211 million a year before. Agarwal attributes the rise to Oyo's aggressive expansion and the maturing of its more established markets in India.
"What's important to note is that the losses in our mature market, India, went from minus-25 percent to just minus-14 percent, which is just $80 million, even though it contributed over 60 percent of our revenues," he said.
Oyo's goal is that the U.S. and China follow suit in the coming years, though it remains to be seen if the new markets have staying power.
The company opened 300 hotels in the U.S. since last spring. But recent downsizing led to the layoffs of 360 U.S. employees.
As for investors eager to see profits, Agarwal said he hears them loud and clear.
"Worldwide, regardless of who their investor is, high-growth companies are getting clear feedback that a path to profitability is extremely valuable and will be highly appreciated. That's something we fully acknowledge, and Oyo is on the path to try and improve."
Agarwal did not share a set date for when the company hoped to reach profitability but repeated his claim that Oyo was moving in the right direction.
"We're not laying out an exact date in today's discussion, but what we are basically saying is we have had three clear fiscals of mature markets moving toward profitability. We hope to continue delivering on that path," he said.