WeWork’s trouble began with its failed IPO last year and $900 million loss that it incurred over six months along with questions raised around its corporate governance practices.
Highlighting the impact of trouble at co-working company WeWork on the industry and ecosystem, OYO’s founder and CEO Ritesh Agarwal said that it was WeWork that changed the ‘atmosphere’. “There was before WeWork and then there was after WeWork…Pre WeWork, all our decisions were iconic. Later it seemed easy to blame us for all we decided,” Agarwal told Financial Times. WeWork’s trouble began with its failed IPO last year and $900 million loss that it incurred over six months along with questions raised around its corporate governance practices.
Market experts and critics have often compared WeWork and OYO backed by Masayoshi Son-led SoftBank who had pushed his portfolio founders to grow rapidly at all cost without much focus on the profitability and their questionable valuation. Also, a comparison has been drawn between the two founders – Adam Neumann and Agarwal. “The combination of Masayoshi Son and a hungry young kid was a combustible combination. They were both culpable,” Financial Times quoted the local head of an international investment firm commenting on OYO.
From $47 billion, WeWork crashed to near bankruptcy before Softbank reportedly offered bailout of $9.5-billion package in October including a tender offer of $3 billion of WeWork shares. OYO’s valuation doubled from around $5 billion to $10 billion after Agarwal decided to buy back almost all the shares of its early investors – Lightspeed and Sequoia. Agarwal said the buyback wasn’t due to SoftBank’s push.” “It was my idea . . . As the CEO, I never ever sell the shares,” he said. He reasoned the valuation jump by comparing OYO with Netflix, Uber and Peloton, the US-based exercise equipment firm that was valued at 4.5 to 5 times revenue last year when it got listed. “We had revenues of between $2.7 and $2.9 bn, so that valuation checks out,” said Agarwal.
OYO reportedly laid off around 600 employees in China and around 1,200 in India while exiting 200 cities as part of a restructuring exercise in January this year. Also, according to a Bloomberg report, the company had laid off 5,000 employees across the US, India and China. Agarwal recently in a video message to employees said the company has sent a “significant number” of employees in the US and other markets on leaves and furloughs for two-three months due to the Covid-19 impact on business. Its revenues also declined around 50 per cent – 60 per cent, according to Agarwal. The company has also been accused by industry associations such as FHRAI of unfair business practices including destroying competitive pricing by abusing its dominant position in the market. OYO competes with smaller players FabHotels and Treebo in the budget hotel segment.