How Does OYO Rooms Make Money?

This post covers the story of Oyo Rooms and also discusses their innovative business model which makes them valued today at USD 10 billion(~70,000 crores).

Index:

History:

Oyo Rooms is a hospitality company that provides budget hotels to its customers. Oyo Rooms is the brainchild of Ritesh Agarwal who started this company at the age of 18 as Oravel Stays Pvt. Ltd. and finally renamed it Oyo Rooms in 2013.

Ritesh Agarwal

Ritesh Agarwal is also the only Indian winner of the Theil Fellowship from Peter Theil (Founder & CEO of Paypal) in which he received the grant of 100,000$.

How OYO works?

Oyo Rooms is not just a simple hotel aggregator like Make My Trip and Yatra.com which take commission while making a new booking from their online platform. Oyo took a different approach where they cobrand hotels with Oyo’s name on their app and assure some basic facilities to be provided in their rooms. They make revenue, not on a commission basis but on a reselling basis.

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How OYO makes money?

let’s take an example to understand it better: Let’s say in a Hotel XYX there is a room which costs 2000 bucks/day to a customer and it remains occupied on an average 10 days per month. With this

Hotel XYZ revenue = 2000 *10 = 20,000 bucks/month

But in the OYO model, Oyo makes an advance booking of room for the whole month, therefore, they get a discount of about 50% from the hotel side. This makes them book a room at 1000 bucks/day and they resell it to the customer at 1200 bucks/day.

Hotel XYZ revenue with Oyo System = 1000 *30 = 30,000 bucks/month

With this model, Hotel earns 30,000 bucks/month instead of 20,000 and customers get the room at 1200 bucks which instead will cost them 2000 bucks. So, this help Hotel to get more revenue from their rooms and also customer can book the rooms at a cheaper price. While talking about expenses, Oyo’s expenses are majorly coming from the advances paid to hotel owners and the maintenance of their rooms. Currently, they also provide early check-in benefits when booked early, this strategy also gives them a first-mover advantage in the hospitality industry.

Oyo Townhouse:

Recently, Oyo introduces the OYO townhouse in its portfolio. With this OYO provide smart rooms which provide TVs with Netflix and the app enables 24/7 food ordering.

Oyo Studio stays:

Using OYO studio people can book rooms for their internships, jobs, or corporate stays and can even book for twin sharing.

Oyo B direct:

Using OYO B direct one can ease their business stays with easy reimbursement with GST-ready invoices.

Oyo Homes:

OYO homes provide completely private homes for stays on holidays.

Revenue and profit/loss:

OYO reported revenue of USD 1.8 billion for the Calender year 2018, compared to USD 0.4 billion reported for 2017. (As per ET) While talking about Oyo’s profitability in 2018, they have reported a net loss of Rs 360 crore, a marginal rise from the net loss of Rs 355 crore it had reported in fiscal 2017.

Funding and Valuation:

In 2017, Oyo was valued at about USD 860 million, and finally, in 2018 it was valued at about USD 5 billion and by end of this year(2019), it was expected to reach a valuation of about USD 10 billion. SoftBank, which has led the last four funding rounds for Oyo since 2015 holds about 46% stake in the company, other major investors include Lightspeed which owns about 13%, Sequoia about 10%, Green Oaks about 5%, and Ritesh Agarwal with 10%.

Rise and Acquisition:

Currently, Oyo has expanded to India, China, Malaysia, Nepal, the United Kingdom, the United Arab Emirates, Saudi Arabia, the Philippines, Indonesia, and Japan. Also, listed more than 23000 hotels on their website and expanded to more than 800 cities worldwide. (As per Oyo) Oyo also highly believes in the strategy of acquisition from initial days onwards they have made several national and international acquisitions.

Source: Crunchbase

Oyo Statistics:

Currently, OYO covers more than 1 million rooms across the world.
World accommodation leader Airbnb invested around $150-200 million in OYO.
Oyo has more than 10million app downloads.
In 2020 OYO has more than 2700 employees.
Oyo covers more than 125,000 vacation homes.
Oyo has more than 23000 hotels in its brand.
OYO has 300,000 daily active users.

Facts and Updates:

In 2019 Oyo entered the USA to stand beside American unicorn Airbnb.
In 2020, Ritesh Agarwal along with Gaurav Gulati introduces an early-stage startup fund named “Aroa” where the investment lies in $500,000 to $5million.

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How Does OYO Rooms Make Money?

Index:

History:

How OYO works?