Just over seven months ago, India’s Oyo Hotels proclaimed itself the world’s third largest hotel. Now the Softbank-backed startup is cutting headcount in its home market by around one-fifth, as it struggles for profitability.
Valued at as much as $10 billion during December, the seven-year-old hotel management firm sent out letters of termination to an unspecified number of employees in India on Monday, with 26-year-old founder Ritesh Agarwal saying in an email to staff that the Gurugram-based company is “taking steps to optimise and strengthen our business,” as it enters the new year.
A report in India’s Economic Times cited unnamed Oyo officials as saying that the company, which had already cut its India staffing from an estimated 13,000 to around 12,000 people, would lay off around 20 percent more of its team, with more cuts on the way.
The reduction in force in Oyo’s India business comes just days after Bloomberg reported that the firm was laying off 5 percent of its 12,000 person team in China – its second largest market. Like a number of its Softbank stablemates, Oyo is reportedly under pressure from its largest investor to reach profitability in the wake of WeWork’s IPO disaster.
Rooms Disappear as Staff Cut
In tandem with its layoffs, Oyo has also been reducing the number of rooms that it makes available in India, according to a report in the New York Times this week. Since October, the company has pulled out of dozens of cities, according to the Times, while cutting the number of listings on its website by around one quarter.
By the beginning of 2020, Oyo had pulled out of some 200 small cities in India and removed some 65,000 rooms from its public listings, the news account said, citing sources within the company.
The company is said to have begun last week to cut its global headcount, which had grown to 80,000 employees across 80 countries.
A separate Times account earlier this month reported questionable practices within Oyo’s India operation, including acknowledgment by Oyo executives that the company managed or made available to clients thousands of unlicensed guest rooms in order to inflate the number of listings on its website.
In another measure which boosted its listing count, which Oyo trumpeted as 850,000 rooms worldwide in a press release from July, the company kept online offers for rooms at hotels which were not available through its service.
In its announcement seven months ago, Oyo said that across 800 cities, it offered rooms in 23,000 hotels and 46,000 vacation homes with a room count that would push Intercontinental Hotel Group, parent company for Holiday Inn, into fourth place worldwide.
Guaranteed Payments Turns Sour in China
In China, Oyo built a network of 19,000 hotels across 338 cities by offering owners of independent hotels guaranteed income. Last week, however, the Financial Times reported that a dozen of Oyo’s mainland partners stormed the company’s offices in Shanghai demanding past due payments.
That assault on the hotel management firm’s place of business came after some 172 hoteliers signed a letter accusing Oyo of imposing “unclear bills and arbitrary deductions” on its Chinese partners, according to an FT account in December. Oyo countered that it had withheld payments due to customer service issues.
On Friday, Bloomberg reported that Oyo had terminated 5 percent of its 12,000 person China workforce for what the company termed performance reasons.
Question Arise on Governance, Losses
As with WeWork, Oyo’s venture capital-fuelled rise has brought with it mounting losses, as well as questions regarding business practices.
The company reported a six-fold increase in its losses for 2019, according to a Reuters report in November, citing internal documents from Oyo. In its financial report, Oyo predicted that it would reach profitability in 2022.
Oyo’s revenues grew to Indian rupees 64.57 billion ($900 million) in the year ending 31 March 2019, up from around rupees 14.13 billion in the previous year. However, that more than four-fold jump in revenue was outstripped by the company’s losses, which grew to rupees 23.85 billion through 31 March, compared to rupees 3.6 billion in the previous 12 month period, according to the Reuters report, which indicated the documents had been filed with India’s ministry of corporate affairs.
The red ink on Oyo’s financials presents yet another challenge for Masayoshi Son’s Softbank, which is already struggling to answer questions about the future of WeWork as it pursues its goal of raising $100 billion for a new Vision fund.