Financial Times Europe - 19.09.2019

(Jacob Rumans) #1

Thursday19 September 2019 ★ FINANCIAL TIMES 15



A formerHooters casino resort in Las
Vegas is the unlikely test-bed for a revo-
lution in the hotel industry.
The 675-room property is being
rebranded under the banner ofOyo, the
Indian budget outfit that has reshaped
its home market and is now opening a
hotel a day in the UK and US.
Fuelled with funds fromSoftBank, the
Japanese technology group, Oyo is
plotting to become the world’s biggest
hotel chain.
“It’s very hard to put a limit as to the
kind of growth, return, the market share
that these guys could achieve,” said
Munish Varma, managing partner at
SoftBank’sVision Fund. “If you have a
product that serves a purpose and
s o l v e s a v e r y r e a l c o n s u m e r
need... why should you not expand?”
Yet the ambitious plans — accompa-
nied by a rapid increase in its valuation
— has raised questions about the pace of
growth for a company that might be
SoftBank’s biggest bet yet.
Oyo says it is already the world’s
third-largest hotel chain with roughly
1m rooms, including vacation homes,
behind onlyMarriott International nda
Hilton Worldwide. FounderRitesh
Agarwal ays the group is on course tos

surpass its bigger competitors by 2023.
“If you compare other traditional
hotel chains which have become a mil-
lion-plus rooms, they’ve all taken at
least over half a century,” Mr Agarwal,
wholaunched Oyo at 19, said from
the company’s cramped office in
a Delhi suburb. “Oyo Hotels has taken
maybe five-and-a-half years to be able
to get there.”
Oyo’s pursuit of scale is drawing com-
parisons to another SoftBank invest-
ment and fellow property manager
WeWork, which postponed itsplanned
IPO his week after investors baulked att
the valuation, business model and gov-
ernance. As they tried to save the deal,
bankers floated valuations at about a
third of the $47bn level attached to Soft-
Bank’s last investment.
Oyo’s own valuation has drawn scru-
tiny. Mr Agarwal in July led a $2bn
investment round into his own com-
pany in anunusual transaction, borrow-
ing in order to buy shares from existing
investors Lightspeed and Sequoia.
According to people with knowledge
of the deal, a consortium of Japanese
financial groups includingNomura nda
Mizuho, which count SoftBank as one of
its biggest clients, helped to finance Mr
Agarwal’s purchase.
In addition to loans, the Japanese con-
sortium later made an investment in
Oyo, which valued the company at
$10bn, double its previous $5bn valua-
tion. Nomura and Mizuho declined to
comment on the deal, which sharehold-
ers and regulators still have to approve.
Mr Agarwal, who tripled his stake
from around 10 to 30 per cent, said it
was a show of faith in the business
model and gave Oyo the resources to
grow. But industry observers ques-
tioned the rationale, saying it was the

first time they’d seen a founder borrow
so heavily in order to reinvest in his own
business. “It’s very unheard of,” said one
tech investor.
A person familiar with the process
responded that the $10bn figure was
arrived at with “an extremely conserva-
tive calculation”.
Yet Oyo’s reported revenues are tiny
in comparison to itspeers. For its Indian
business, it reported revenues of
Rs4.2bn ($58.5m) in the year to March
2018, 3.5 times higher than the previous
year, and predicted Rs14.8bn for the
next year. Its losses widened to Rs3.6bn,
which Mr Agarwal attributed to invest-
ment in technology and staff.
Marriott International’s revenues
were $5.3bn in the last 12 months,
according to S&P Capital IQ. Hilton
Worldwide’s were $3.7bn.
Part of what has helped Oyo’s soaring
value is its spread into new countries
and business areas. Its core success

came signing up scruffy Indian budget
hotels as franchisees or on leases,
imposing basic common standards and
using its online booking platform to fill
them efficiently. But Oyo says it is now
present in 80 countries and has
launched ventures from co-working to
wedding catering, as well as mid- and
upmarket hotels.
SoftBank and other investors, which
includeAirbnb, say Oyo has tapped into
a potentially revolutionary model by
organising previously fractured budget-
accommodation markets.
For its Las Vegas venture, Oyo part-
nered with real estate investorHighgate
to acquire the formerHooters asino forc
$135m nd run it as an Oyo property.a
At Oyo’s core is a team ofmore than
2,000 engineers and data scientists.
They crunch numbers to discover which
tweaks to a hotel’s amenities ill resultw
in the most revenue per room, or adjust
rates depending on how many flights
are landing in a city that day. Oyo says
occupancy at its hotels improves on
average from 25 per cent to 75 per cent
within three months.
“Most companies that have the dis-
ruptive tag by definition are somewhat
controversial,” said Bejul Somaia, a
partner at investor Lightspeed. “That’s

part and parcel when you’re trying to
take on a large established industry and
do things differently.”
Industry observers express surprise
at Oyo’s swift transformation. “It’s been
a little bit stealthy in the way it’s opened
up a lot of hotels in a lot of geographies,”
said Richard Clarke, a senior analyst at
“They’re in the top 10 largest hotel
companies in the world, and most peo-
ple are not even aware they exist.”
It is unclear, however, whether Oyo
can win over overseas hotel owners and
guests as it has investors. For one, 80 per
cent or more of hotels in its core mar-
kets of India and China are unbranded,
according to Morgan Stanley, giving the
group a ready pool of neglected outlets
to sign up. In Europe and North America
that share falls markedly, with 70 per
cent of US hotels already branded.
Analysts also question whether there
are problems involved with Oyo’s roar-
ing growth. Part of what allows it to
absorb new hotels quickly is the light
requirements it imposes. Hoteliers have
to offer basics like free WiFi and break-
fast but do not need to undergo efur-r
bishments demanded by many chains.
Some say this translates into laxity.
“The experience was very inconsistent.
One Oyo I went into in Delhi was very
good,” one guest said. “Another I went to
somewhere in north India was very,
very shoddy... If I’m going alone, I
may take the chance. But if I’m going
with my family I won’t take chances.”
Oyo says that it has implemented
safeguards to ensure consistency and
takes customer feedback seriously.
“We will continue to learn and
improve,”it said.
The energetic Mr Agarwal remains
convinced of Oyo’s prospects, especially
with its enlarged equity value. “The
company has been built with much
lesser capital than that kind of balance
sheet. If we just double our company
we’ll be the largest, so that makes it very
simple arithmetic.”
Additional reporting by Arash Massoudi
and Leo Lewis

SoftBank looks to Oyo for its next big success

Fast-growing Indian hotel chain’s latest launch in Las Vegas offers solace for Japanese investor after WeWork setback

Sources: FT research; Bernstein

Rise of Oyo
Number of rooms, Q (m)







Share of total hotel rooms that are already branded ()


Middle East/Africa


Latin America


Number of rooms in India (’)

Oyo Other major chains

* includes hotel rooms but not vacation homes


Facebook as said it will launch ah
“smart video chat” device that con-
nects to consumers’ televisions, while
revealingit will allow human review of
the audio the product collects from
some users, despite a backlash from
privacy critics over the practice.

As part of a continuing push into con-
sumer hardware that will see its new
device take on similar products from
Amazon and Google, thelargest social
media company announced plans yes-
terday to launch Portal TV, a voice-con-
trolled product that can be connected to
users’ TVs for making video calls and
streaming content.
Last year, the company launched Por-
tal, a smaller device sed purely foru
video chatting. But the latest product
will also incorporate video and music
streaming services, includingAmazon
Prime,Spotify, Showtime andCBS llA
In addition, Portal TV will feature
Amazon’s Alexa smart speaker, which
will allow users to make requests acti-
vated by saying the phrase “Hey Portal”.
It will also feature augmented reality fil-
ters for callers.

While the company stressed that the
device had been designed with privacy
in mind,Andrew Bosworth, Facebook’s
head of virtual reality and augmented
reality, said that it would record audio of
users’ questions to the smart speaker
and send it to a “trained team of review-
ers who may review a sample of those to
improve voice services for everyone”.
The move reverses a decision by Face-
book just weeks ago to halt the human
review of recorded voice messages over

privacy concerns, following a Bloomb-
erg report that it had been using outside
contractors to transcribe certain clips.
Facebook said it had decided to
relaunch the process for Portal after
adding the ability for users to opt out of
having any audio reviewed. All human
review of audio clips on its Messenger
app is still paused, it said.
Apple nda Google ast month sus-l
pended the transcription of recordings
made using their Siri and Assistant dig-
ital apps, respectively.
In an effort to replicate the experience
of “hanging out”, Portal TV’s cameras
will use artificial intelligence to auto-
matically follow users around the room
while they are on a video call, while
its eight microphones will ensure they
do not have to change their speaking
By introducing streaming services
alongside video chat capabilities, the
$149 Portal TV will compete with Ama-
zon’s Fire Stick, Google’s Chromecast
While the device itself will not run
advertising, Mr Bosworth said that
some of the data collected from it
“might inform the ads” that people see
on Facebook.


Facebook TV device raises privacy fear

‘One Oyo I went into in

Delhi was very good.
Another in north India

was very, very shoddy’


‘They’re in the top 10

largest hotel companies,

and most people are not

even aware they exist’

The Portal TV device allows
streaming as well as video chats
Free download pdf