OYO cuts losses and spend, shuns OTAs


OYO Rooms is lifting its topline revenues while reducing its cash burn but still remains in the red, according to an official blog post.

The India-based, Softbank-backed online budget hotel aggregator has raised a reported $200 million so far since its launch in 2013. It is the best funded of many similar businesses in India, giving budget hotels who agree to operate as a branded property access to property management technology, advice, training and a direct and third-party distribution platform.

In the blog post, its CFO Abhishek Gupta said that because “we are not emulating a global template, we are sometimes not very well understood and often our metrics are misrepresented and quoted out of context. Until now, we have been very private about our financial and operating metrics. But, we have realized that this creates a perception that the company is not being forthcoming.”

The three months to the end of June this year were its best ever, allowing it to project that gross bookings for 2017 will come in at around $400 million from some 15 million room nights.

It talks about its net take rate – “what OYO makes from this realized booking revenue after paying our hotel partners” – as the key metric and this has been positive since March 2016.

The business is still in the red, although losses in the year to end-Dec16 were down significantly on FY 15 – INR 3.25 billion ($50 million) in 2016 compared with INR 4.96 billion ($77 million).

The blog post also reveals that 98% of OYO bookings are direct, which Gupta believes is the basis for a sustainable business model.

He said “Most of our lookalikes rely heavily on OTAs, which fundamentally makes limited business rationale because of unviable economics and low customer repeat/retention rates.”

OYO is seeing a repeat customer rate of 45% and claims that it has nearly 100,000 “advocates” – defined as someone who has stayed with OYO at least five times in the past six months and made at least three bookings with the app.

It believe that by increasing the number and quality of its hotels it can get to a double-digit market share by 2020. It currently has some 30,000 rooms on its books and launched a new initiative late last year to speed up the time taken by hotels wanting to become an OYO property. The post includes a link to video showing how a hotel in Nepal took only 14 days to become an OYO.

Increasing the topline revenues while reducing burn but remaining in the red is a familiar refrain. The budget hotels sector in India remains fragmented, which means there are opportunity for aggregation players to enter the fray. OYO is not the only the brand trying to persuade owners and operators to fly its flag, but we’ve seen elsewhere how scale can be self-perpetuating.

And as Gupta notes, OYO is “blessed with shareholders with long-term vision.”

ENDS:
Related reading from Tnooz:
FabHotels nabs $25 million Series B (July 2017)
Yatra makes big corporate travel statement with Air Travel Bureau takeover (July 2017)
Ixigo predicts machine learning will make the difference (July 2017)



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