The Rise, Fall, and Resurgence of OYO
In 2021, a leading Indian news website wrote a scathing critique of OYO , the once-promising hospitality giant. This report reflected a company in turmoil- global revenues had plummeted by 50-60%, many employees in international markets were furloughed, and a 20% layoff, amounting to 2,400 employees, was announced by founder Ritesh Agarwal. Worse still, the company had posted a record loss of ?13,123 crore in the 2019-20 financial year, a staggering $1.6 billion loss, and this was before the pandemic's havoc. Coupled with legal battles, dissatisfaction from hotel partners, and mounting pressure from investors, it seemed like the company’s shining days were behind it.
Fast forward to 2024, and Oyo’s story has taken a remarkable turn. The company has posted its first-ever profitable year, recording a net profit of ?229 crore, with projections to triple this figure in the following year. The question remains: How did Oyo go from being one of the most distressed startups to one of the hospitality sector’s promising players? To understand this, we need to take a step back and look at the company’s journey.
Early Struggles and Ritesh Agarwal’s Vision
OYO was founded in 2012 by 19-year-old Ritesh Agarwal, who initially envisioned it as a hotel booking platform, inspired by Airbnb, which was then rising in the US. Originally named Auravel Stays, the company’s goal was simple: make budget hotels more accessible and standardized. However, Ritesh’s journey was far from conventional. Unlike many startup founders, he didn’t attend elite institutes like IIT or IIM, nor did he have the financial backing of a wealthy family. What he had, however, was a stroke of luck and a vision that would drive Oyo’s growth.
That stroke of luck came in the form of Peter Thiel, the founder of PayPal and an early investor in Facebook, who believed in the potential of young, hungry founders. Peter launched the Thiel Fellowship in 2011, offering $100,000 to talented young people who could drop out of college and start something. Ritesh, with his newly-formed company, Auravel Stays, became one of the first recipients of this fellowship.
This fellowship was a game-changer. In a matter of weeks, Ritesh learned the critical lesson that would set the course for Oyo: It wasn’t about just booking hotels. It was about ensuring a standardized, quality experience for customers. This realization prompted him to rebrand his company to Oyo and focus on providing budget hotels with guaranteed features like clean sheets, Wi-Fi, air-conditioning, and more. It was a simple yet effective business model: Oyo would charge hotel owners a commission, ranging from 15-25%, for managing the guest experience and marketing the properties.
Rapid Expansion and SoftBank’s Influence
By 2016, Oyo had expanded significantly, claiming a presence in 100 cities in India and boasting over 5,500 hotels on its platform. This growth trajectory caught the eye of one of the world’s most influential investors, Masayoshi Son, founder of SoftBank. SoftBank’s Vision Fund, one of the largest tech-focused VC funds in the world, had already invested in global titans like Alibaba, Uber, and ByteDance. Seeing the potential to disrupt the global hospitality industry, SoftBank decided to invest in Oyo, pouring in over $1.5 billion between 2015 and 2019, and making it the largest shareholder with nearly 47% stake.
With SoftBank’s financial backing, Oyo aimed for global expansion, aggressively scaling operations and implementing a two-pronged approach. First, it introduced a Minimum Income Guarantee (MIG) model, promising hotel owners a fixed income regardless of the number of bookings. This model was especially attractive to hotel owners, who had previously struggled with seasonal fluctuations. For instance, if a Bengaluru hotel was promised ?7 lakh a month, Oyo made the payments to ensure stability for the owners. This move, coupled with SoftBank’s deep pockets, allowed Oyo to onboard thousands of new hotel partners, particularly in Southeast Asia, and later, China.
By 2019, Oyo had partnered with over 19,000 hotels in China alone, surpassing India’s numbers, and expanded to 80 countries. This global reach catapulted Oyo to become the third-largest hotel chain in the world, just behind Marriott and Hilton. The company’s revenue surged from ?32.8 crore in FY16 to ?13,168 crore in FY20—a more than 400-fold increase in just four years.
The Dark Side of Rapid Expansion
However, this rapid growth came at a steep cost. The company’s approach to scaling caused friction with its hotel partners. Oyo transitioned from a platform model to a franchise model, taking control of hotel pricing and inventory. While this ensured greater control over the customer experience, it also led to dissatisfaction among hotel owners who were now bound by stringent rules set by Oyo. Many hotel owners felt that they had lost autonomy over their pricing and operations, leading to rising tensions.
In addition, the revenue model that Oyo had introduced—guaranteed fixed income for hotel owners—began to show cracks. As demand fell short of expectations, Oyo was forced to pay hotel owners from its own pocket, exacerbating its financial losses. By FY19-20, Oyo’s losses had ballooned to ?13,123 crore.
The company’s troubles didn’t end there. Legal disputes began to surface, with hotel owners suing Oyo for changes in contract terms and the revenue-sharing model. These issues were not only prevalent in India but also in international markets such as the US and China, where Oyo faced legal battles from disgruntled hotel owners who felt misled by the company’s promises.
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Impact of the COVID-19 Pandemic
As if things weren't challenging enough, the COVID-19 pandemic struck in early 2020, delivering a massive blow to the global hospitality sector. Oyo, whose business was heavily reliant on hotel bookings, saw a sharp decline in demand. In response, the company laid off thousands of employees and shut down non-profitable properties. But the biggest pressure came from Oyo’s investors, particularly SoftBank, which had already suffered massive losses from its investments in WeWork. SoftBank now demanded that Oyo show profitability, adding to the already intense pressure on Ritesh Agarwal and his team.
Turning the Corner: Oyo’s Revival
Despite these setbacks, Oyo’s story took a dramatic turn in 2024. The company managed to post its first-ever profit of ?229 crore, a significant turnaround from the massive losses it incurred in the previous years. This success was driven by several factors, including:
Oyo's valuation journey has been a turbulent one, marked by peaks and valleys. Once a high-flyer with a valuation of $10 billion in 2019, the company has seen its worth slip over the years. Despite multiple fundraising rounds and two unsuccessful IPO attempts (with the company filing and recalling its DRHP twice between 2021 and 2024), Oyo has continued to secure funding in the private market.
In its most recent Series G round, Oyo raised approximately ?1,450 crore, bringing its valuation to ?19,700 crore (~$2.4 billion). This represents a significant drop from its previous funding rounds, but there’s a notable silver lining: promoter buying.
Ritesh Agarwal, Oyo's founder, has consistently shown confidence in the company by participating in its funding rounds. Notably, in 2019, he took out a $2 billion loan from Japanese banks to purchase a 20% stake in Oyo, offering a much-needed exit to earlier investors. In the Series G round, Ritesh further invested $100 million through his Singapore-based entity, signaling a continued strong commitment to the company. Ritesh now owns around 6% of Oyo’s shares, while his Cayman entity holds about 23%. His Singapore entity has recently acquired an additional 4% stake.
Promoter buying, such as Ritesh's, can be a powerful sign of confidence, as it shows that the company's leadership is willing to put its own money on the line. No one understands the business better than its owner, and Ritesh’s ongoing investments help reassure stakeholders.
Despite this, Oyo has currently shelved its IPO plans, opting to focus on private funding instead. The Series G round saw participation from notable investors like Ashish Kacholia, Mankind Pharma, and ASK Wealth Management, signaling strong private market interest. As it stands, Oyo’s IPO appears to be on hold, meaning the general public may have to wait several more years to potentially invest in the company’s recovery story.
Conclusion
Oyo’s journey has been a testament to both the volatility and resilience of the startup world. From its early days as a high-flying disruptor in the hospitality industry to facing a major downturn, the company’s path has been anything but predictable. The challenges it faced—aggressive expansion, financial losses, and partner dissatisfaction—highlight the perils of scaling too quickly without a clear, sustainable foundation.
However, Oyo’s story is also one of recovery and perseverance. Under Ritesh Agarwal’s leadership, the company adapted to the changing landscape, making tough decisions and learning from its missteps. This ability to pivot and focus on profitability, rather than just growth, has been key to its recent success.
Looking ahead, while uncertainty remains in a competitive and shifting market, Oyo's ability to adapt and focus on long-term sustainability suggests it may still have a significant role to play in the hospitality industry. The journey of Oyo serves as both a cautionary tale and an inspiring example of how companies can reinvent themselves even after facing the toughest of challenges.