Replicating scale: Will OYO Homes be as big as OYO Hotels

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Updated: May 2, 2019 7:40:17 PM

The global scale that SoftBank-backed Ritesh Agarwal's OYO has achieved in the hotel space is now getting percolated to the home rental market as well globally. And its recent acquisition of Amsterdam-based @Leisure Group might be the inflection point in that journey.

L-R: Ritesh Agarwal, Founder & Group CEO, OYO Hotels & Homes; Tobias Wann, CEO, @Leisure, Group and Maninder Gulati, Global Chief Strategy Officer, OYO Hotels & Homes

Standardization of underutilised or unused hotel inventory gave SoftBank-backed OYO the opportunity to build and scale India’s budget hotel accommodation market globally and become perhaps the only startup success story to come out of India that had no precedent before in the world. In around six years, OYO became, as it claimed, the world’s sixth largest hotel chain managing more than 515,000 rooms in 10 countries till last month.

From sixth largest OYO wants to be the world’s largest hotel chain by 2023, taking over the incumbent player Marriott that manages 1.29 million rooms globally. “I believe it (overtaking Marriott) will come sooner,” Nikkei Asian Review quoted OYO’s Founder and CEO Ritesh Agarwal during the launch of its apartment rental service — OYO Life in Japan in March.

Homing in

OYO’s scale on the residential real estate end has also been significant. Since its launch in September 2017, the company had expanded to 15,000 homes including villas and apartments in India and Dubai till Wednesday when it announced that it has agreed to acquire the Amsterdam-based vacation rental company @Leisure Group that manages holiday homes, apartments, and holiday parks.

“OYO has grown significantly through multiple acquisitions via the inorganic route right from the beginning to expand into different categories even as their initial model was an aggregation of hotels,” hospitality consultancy firm Hotelivate Managing Partner Achin Khanna told Financial Express Online.

Among the recent notable deals, OYO had acquired coworking platform Innov8 in March this year.

However, this acquisition deal ain’t like any of OYO’s previous buyouts. Not only because of the amount — $415 million but also because it gives OYO direct and instant access to @Leisure Group’s 1.15 lakh units of homes. And that’s massive — over 13X growth for OYO in homes segment in the European market.

“OYO has paid $415 million to buy 100 per cent stake in @Leisure Group from Berlin-based digital publishing company Axel Springer. It was the majority shareholder with 51 per cent stake bought for €180 million ($201 million) in @Leisure Group,” two sources familiar with the deal terms told Financial Express Online requesting anonymity.

End-to-end Rise

OYO looks at it from the perspective of leading the space globally. This is because Europe (where @Leisure Group has a huge presence) is the gateway to the world’s homestay or vacation home market. Homes category offers OYO a large market opportunity of over $2 trillion across more than 100 million homes that include vacation rentals and urban homes. And Europe has its lion’s share — 30-40 per cent, OYO said.

This might well be the trigger for OYO to pull off growth similar to what it has achieved in the hotel segment. “This deal (acquisition of @Leisure Group) will make OYO one of the largest companies globally in markets such as vacation rental and holiday homes. It is also the biggest buyout deal by OYO ever,” said one source.

However, OYO’s broad aspiration may not be to simply replicate its success in hotels segment to homes business as well. The aspiration is to diversify and have everything under its umbrella that belongs to the hospitality domain including long term housing rental or co-living that it offers under brand name OYO Life that was launched in Japan last month and student housing segment that it is “looking to enter by next quarter,” according to the source.

“Diversification by virtue of not just doing traditional hotels but vacation rentals is a sensible business strategy for anyone who has the requisite capital. Also, OYO is trying to grow its co-working platform. So they want to do all things hospitality,” said Khanna.

One can also probably look at a correlation between OYO’s rise in vacation or home rental market and Airbnb that is already a global giant in the vacation rental market and had backed OYO recently. 

“So there may be some synergies they (OYO and Airbnb) can see by virtue of their partnership that can now be applied to this new business (@Leisure Group) that they have acquired. OYO in conjunction with Airbnb can certainly become one of the largest businesses in home rental space,” Khanna added.

OYO had raised $73 million from Airbnb in April this year, which “earlier speculated as per media reports as $100-200 million,” the source added was part of OYO’s Series E round that was launched in September last year.

Ritesh Agarwal (Founder and Group CEO, OYO Hotels & Homes) had early on defined two things — first, serve as many people as possible, and second, to be the world’s biggest hotel company. “So scale and serving the masses has been his two basic pillars and both get checked when you do an acquisition like this,” said Khanna.

While OYO’s India revenues reported over 3X jump from Rs 120 crore in FY17 to Rs 416 crore in FY18, its net loss went marginally up to Rs 360 crore in FY18 from Rs 355 crore in the preceding year.

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