Oyo is not wasting the WeWork crisis

[MUMBAI] Oyo Hotels & Homes is making the most of its crisis. Ritesh Agarwal's Indian startup is cutting 5,000 jobs, focusing on profitable growth, and improving governance. That might deflate the budget-hotel-slash-booking-engine's US$10 billion valuation, but its rapid growth looked reminiscent of the prelude to the fall of Adam Neumann's shared office space empire, The We Company, especially since it also has a relationship with the SoftBank Group and its Vision Fund. A restructuring is welcome.

The seven-year-old private company is reducing its workforce by around 17 per cent to 25,000, as per Mr Agarwal. About 3,000 of those employees are being let go in China, Bloomberg reported on Wednesday citing people familiar with the situation. That suggests serious pain in a market where Oyo had claimed the top spot for a branded hotel, with as many as 600,000 rooms. That is a big chunk of its total 1.2 million rooms around the world.

Brutal cuts might help trim losses, which have grown much faster than revenue. Oyo's overall net loss ballooned 544 per cent from a year earlier to US$335 million as at March 2019; revenue rose 351 per cent over the same period. Mr Agarwal's first challenge is to reverse the dynamic and make overall operations run more like its business in India, which is closer to profitability.

A more measured approach to new ideas, which range from so-called cloud kitchens to wedding planning, will allow Oyo to re-focus on repairing frayed relations with customers, many of whom have complained of inconsistent service. Hotel partners, for their part, are unhappy about being forced to offer deep discounts, and need to be placated.

By taking bitter medicine now, Oyo may avoid the shattering valuation reset experienced by WeWork's parent. The company was valued as high as US$47 billion, then it crashed down to around a quarter of that. It was forced to scrap its initial public offering too.

The shift bears the imprint of Masayoshi Son's more conservative approach to his hugely undervalued SoftBank empire, which has now come under the scrutiny of Elliott Management. The activist investor is angling for improved decision-making processes, better governance and more. If nothing else, Oyo's aggressive move underscores how rapidly changes are being propagated throughout the group's portfolio.

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Oyo Hotels & Homes is cutting its global workforce by 5,000 to 25,000 as part of a restructuring, Mr Agarwal told Bloomberg in an interview published on March 4.

The company backed by the SoftBank Group intends to cut half its 6,000 full-time workforce in China, the report added, citing people familiar with the situation. A portion of its 4,000 so-called discretionary staff will also be temporarily laid-off, one source added.

REUTERS