Oyo CEO says aggressive US expansion continues, defends investor SoftBank

Ritesh Agarwal, founder and CEO of OYO

OYO

Japanese tech conglomerate SoftBank may be struggling with its investments in WeWork and Uber, but its stake in Oyo Hotels & Homes continues to pan out well ... for now.

In its latest round, Oyo raised $1.5 billion in Series F funding. Oyo CEO Ritesh Agarwal through his holding company RA Hospitality Holdings put $700 million into the company as primary capital, financed by a consortium of Japanese banks.

Oyo, the fast-growing hotel budget chain operator that started in India six years ago, is doubling down on its expansion plans and taking aim at the U.S. after growing its presence in a number of markets in broader Asia.

Oyo's business model consists of renovating and rebranding budget hotels, applying a set of standards to drive occupancy while using its online booking platform and mobile app to fill the rooms.

Agarwal is forecasting the occupancy rate of its U.S. hotels — once rebranded — to rise to 70% to 80% from 35% to 40%.

Oyo said it uses dynamic pricing and data analytics to effectively price its hotel rooms and works closely with each hotel owner to improve RevPAR or revenue per available room – the main metric used by the hotel and lodging industry.

In a phone interview with CNBC, Agarwal tried to differentiate Oyo from other fast-growing private companies that have yet to turn profitable and have received strong criticism from investors.

"Three years in a row we have cut our losses in half every year ... and our revenue continues to increase," Agarwal told CNBC.

"We are comfortable we are on the right path," Agarwal said in regard to Oyo's financial position.

When asked about the company's path to profitability, Agarwal said it is "only a matter of time before get there."

Being able to effectively articulate a company's plan to becoming profitable has been one of the primary challenges facing high-flying IPOs like Uber, Lyft and Peloton, all of which are trading below their offer price.

Agarwal said his team remains fixated on growth, penetrating new markets while creating a strong brand name in the U.S. By room count, Oyo said it has become the world's third-largest hotel chain, behind Marriott and Hilton. As of June 2019, the company said it has 23,000 hotels with 850,000 rooms in 800 cities across the globe.

On going public, Agarwal said, "Oyo has no plans for an IPO because we are focused on execution."

Troubles at WeWork, a shared workspace giant that recently canceled its IPO, have thrust SoftBank, its largest shareholder, into the spotlight and raised concerns about its style of investing.

But Agarwal was quick to praise SoftBank founder Masayoshi Son, one of his first investors.

"Masa is one of the most visionary leaders of our generation," Agarwal said. "He invested in Alibaba, Yahoo Japan. We remain inspired by him. I attribute a lot of our growth to him."

Agarwal said when Oyo was expanding into China, Son's team played an instrumental role in the launch. Oyo is now in 80-plus countries around the world.

Still, the scale of Oyo's expansion has raised questions surrounding the company's aggressive growth strategy, especially given Wework's latest difficulties, said one investor to CNBC.

According to bankers, Oyo has a valuation of $10 billion. Key investors include SoftBank Vision Fund, Lightspeed Ventures, Airbnb and Sequoia Capital.

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