The Covid-19 pandemic has had a severe impact on businesses worldwide, with some managing to recover while others have shut down. OYO is one such startup that is still grappling with financial challenges to keep its operations afloat smoothly despite the resurgence of the travel and hotel sectors. This struggle is reflected in the dramatic drop in OYO’s valuation, which plummeted by 76% from $10 billion in 2019 to a mere $2.4 billion in 2024 in its latest funding round.
What makes this situation even more alarming is that OYO’s current valuation is now below its total capital raised, which stands at approximately $3.3 billion.
Founder Ritesh Agarwal’s aspirations of taking OYO public were dashed in May 2024 when the company withdrew its IPO application from SEBI. As a result, the startup has turned to private investors for a lifeline.
OYO recently raised $173.5 million in a Series G funding round, largely driven by Patient Capital, managed by Agarwal himself, InCred Wealth, and J&A Partners.
From $10B to $2.4B: The Fall of OYO
The fall of OYO, once India’s second-most valuable startup, has not come a surprise to many industry analysts. There are several factors contributing to the struggle of this hospitality company.
One of the biggest issues is regulatory challenges. Between 2019 and 2022, OYO faced a series of legal disputes and regulatory hurdles in key markets, including China, Japan, the US, and India. These issues, ranging from fraud allegations in the US to tax evasion investigations in India, have significantly impacted its operations and reputation.
Another critical factor has been OYO’s strained relationships with its hotel partners. The company has received numerous lawsuits from hotel owners, accusing it of imposing hidden charges, excessively high commissions, predatory pricing tactics, and pressuring hotels to alter contractual terms or forgo payments. Such contentious relationships have destabilized OYO’s business model and further hindered its operational efficiency.
Additionally, OYO has faced criticism for failing to deliver its core promise of standardized, budget-friendly stays. Many customers have reported dissatisfaction with the quality of service and consistency in the past, leading to a decline in the company’s brand value.
The Unfulfilled IPO Dream
Despite facing numerous challenges, OYO first filed an IPO in September 2021, aiming to raise about $1.2 billion (around ₹8,430 crore) at a valuation of $12 billion. However, the company later withdrew its filing and resubmitted it under SEBI’s confidential filing route in April 2023 with a revised IPO that was 40-60% smaller.
Unfortunately, neither of OYO’s IPO applications received approval from SEBI. In a further setback, the company once again withdrew its draft IPO prospectus in May 2024, reflecting the ongoing difficulties in taking the company public. Since then, the company has been seeking investments from private investors.
In a Nutshell
As India’s travel and hotel industry begins to recover post-pandemic and is expected to grow dramatically in the coming years, OYO has the potential to benefit from this resurgence. By implementing effective strategic decisions, while keeping its expenses in check, the company can capitalize on the expanding market. This approach could potentially lead to future revenue and profit growth for OYO.
Looking into the financial performance of Oravel Stays Limited, aka OYO, the operating revenue declined 1.4% YoY in fiscal 2024 to Rs 53.89 billion. Surprisingly, the company became profitable with Rs 2.23 billion during the year ended 31 March 2024, a significant jump from the Rs 12.87 billion loss reported the previous year.
The massive drop in OYO’s valuation highlights the company’s ongoing struggle in the online travel and hospitality industry. Even though OYO achieved profitability in FY24, the challenges to keep its operations afloat remain significant. This raises a question: Will OYO face the same fate as Byju’s, which was once India’s most valuable startup with over $22 billion valuation but is now on the brink of collapse? Well, it is too early to say anything!
