Bangalore: Oyo Hotels & Homes, the Indian budget lodgings service backed by SoftBank Group Corp., is placing thousands of its employees globally on indefinite furlough as it tries to survive through the coronavirus pandemic, according to people familiar with the matter.
Oyo said in a statement it’s furloughing employees in countries excluding India without specifying numbers, adding that it’s not considering job cuts at this time. The startup, one of the largest in SoftBank’s portfolio, has more than $1 billion of cash in the bank and is exploring options to remain viable over at least the next 36 months, one of the people said. It hasn’t yet determined the precise number of workers to be furloughed because it is sorting through local labor laws in various countries, said the person, who didn’t want to be named disclosing internal discussions.
Founder Ritesh Agarwal told employees in a video message and a note that tough decisions are necessary for the health of the business, and assured workers Oyo would not make any job cuts anywhere in the globe “despite significant economic pressures.”
Oyo’s move — tantamount to going into hibernation — is the latest setback for Masayoshi Son’s SoftBank, whose portfolio has been buffeted by WeWork’s implosion and volatile share prices at once high-flying Slack Technologies Inc. and Uber Technologies Inc. The billionaire has called for greater financial discipline among the founders in his portfolio, spurring job cuts at outfits such as Zume Pizza Inc. and shutdowns of startups including Brandless Inc.
Son has been a keen supporter of founder Agarwal, helping fund the hotel company’s international expansion. Oyo had been growing at a rapid clip, but, as with other travel businesses, the outbreak of Covid-19 has side-swiped the company. Its reputation also suffered due to customer complaints about bad experiences along with grievances about poor or unfair treatment from several of the more than 20,000 hotel owners in its chain.
Furloughing employees is just one of a series of actions to be taken by Oyo, which include management pay cuts and a freeze on marketing spending. Agarwal will forego his entire salary for 2020. In January, even before coronavirus reached pandemic proportions, Oyo had already fired thousands of employees and cut minimum guarantee agreements with hotel partners in an effort to stanch cash bleed.
Son and the 26-year-old Agarwal both have much at stake. Last year, the Oyo founder borrowed $2 billion to buy more shares in his own company, people familiar with the matter have said. Son personally guaranteed the loans to Agarwal, another person familiar with the matter has said.
Six-year-old Oyo increased revenue to $951 million for fiscal year 2019, from $211 million the previous year. Losses climbed to $335 million, or 35% of revenue, from $53 million as the startup expanded into China and other new markets. India accounts for about 40% of revenue currently but there could be no correlation between pre- and post-Covid 19 sales figures, said the person, who was privy to discussions.
Agarwal founded Oyo in India as a way to reserve budget accommodations online with reliable quality. With the backing of SoftBank, the company expanded internationally and was aiming to become the biggest hotel chain in the world by room count before the coronavirus outbreak. Its aggressive expansion has proven controversial after another SoftBank portfolio company, WeWork, crashed after attempting to go public.
SoftBank’s Vision Fund has so far invested about $1.5 billion in Oyo. The company also counts Airbnb Inc., Sequoia Capital and Lightspeed Venture Partners as backers. It promoted its real estate business chief, Rohit Kapoor, to CEO for India and South Asia in December to shake up the business. -Bloomberg
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