Bizarre! The more losses Oyo makes, the more valuable it gets

Bizarre! The more losses Oyo makes, the more valuable it gets
  • OYO’s losses for the last financial year rose six fold of ₹2384.7 crores.
  • The company’s valuation has doubled between September 2018 and October 2019.
  • The boost in valuation largely came from the founder buying back shares at an increased price from existing investors.
Indian hospitality unicorn OYO, backed by Japanese billionaire Masayoshi Son’s Softbank Vision Fund, is piling up losses. Yet, its valuation continues to soar.

A valuation report sourced on OYO’s financials show that the company has reported a loss of ₹2,384.7 crore, almost six times higher than its losses a year earlier. Meanwhile, its operating revenue grew three-fold to ₹6456.9 crore. Whereas the company’s valuation has doubled to $10 billion between September 2018 and now.

The magical boost in valuation came from the $700 million invested by founder and CEO Ritesh Agarwal in October 2019. The money went into buying back shares from existing investors at a higher price, boosting the company’s value. As the iconic investor Warren Buffett famously said, “Price is what you pay, value is what you get.” Agarwal definitely got more value out of the transaction than what he paid for.

A year ago, OYO had raised over $1 billion, led by SoftBank through SoftBank Vision Fund, with participation from existing investors Lightspeed Venture Partners, Sequoia and Greenoaks Capital and supported by new strategic partners like Airbnb.

The piling losses can be attributed to the company’s aggressive expansion to China, South-East Asia, Japan, and then the US. The numbers are alarming for OYO, which reportedly wants to turn hit profitable by 2022.

But the company has gone on the defensive. “These are not the final audited financials and the same will be issued later by the company along with the annual report that we issue every year and file with the RoC as well,” OYO spokesperson told Business Insider.

Many naysayers even predicted a WeWork-like phenomena for SoftBank’s next big celebrated investment – OYO.

What started as a hotel room aggregator, OYO has gone on to buy @Leisure Group, an Amsterdam-based vacation rental company, for an estimated $407 million, Hooters Casino in Las Vegas for $135 million, and an 80% stake in Japanese rental apartment operator MDI, along with SoftBank, which reportedly cost over $100 million.

Even if the comparison with beleaguered WeWork ⁠— whose valuation had to be written down by $39 billion for Softbank after the founder’s misdeeds came to light ⁠— may seem a bit stretched at this point, investors will do well to remember this warning from Warren Buffet, who said, “ If you buy things you do not need, soon you will have to sell things you need.”

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