Oyo Furloughs Thousands of Workers in Setback for SoftBank

(Bloomberg) -- Oyo Hotels & Homes, the Indian budget lodgings service backed by SoftBank Group Corp., is placing thousands of employees globally on indefinite furlough as it tries to survive through the coronavirus pandemic, according to people familiar with the matter.

Oyo said in a statement employees in countries excluding India would be affected without specifying numbers, adding that it’s not considering job cuts at this time. The startup, one of the largest in SoftBank’s portfolio, hasn’t yet determined the precise number of workers impacted because it is sorting through labor laws in various countries, said one of the people, who didn’t want to be identified disclosing internal discussions.

Ritesh Agarwal, founder and chief executive officer, told employees in a video message and note that the impact of the crisis has been significant. Revenue dropped 50% to 60% from the initially estimated 10% to 15%, he said. A certain number of workers “will go on a temporary leave of absence or furloughs for a minimum period of 60 to 90 days,” he said. “This will ensure that these jobs are safe while we reduce costs and streamline business operations.”

Oyo’s move -- tantamount to going into hibernation -- is the latest setback for Masayoshi Son’s SoftBank, whose portfolio has been buffeted by WeWork’s implosion and volatile share prices at once high-flying Slack Technologies Inc. and Uber Technologies Inc. The billionaire has called for greater financial discipline among the founders in his portfolio, spurring job cuts at outfits such as Zume Pizza Inc. and shutdowns of startups including Brandless Inc.

“The negative impact of the coronavirus on tourism and the hotel industry is huge,” said Daisuke Seki, chief executive officer at IB Research & Consulting Inc. in Japan. “Oyo may be suffering more than WeWork. SoftBank was unlucky in that sense. The business model for Oyo is good, yet the situation is just very bad.”

The Japanese company may have to inject more money into the business to support it, Seki said, a messy prospect after the controversial bailout of WeWork. SoftBank’s Vision Fund has so far invested about $1.5 billion in Oyo.

Oyo has more than $1 billion of cash in the bank and is exploring options to remain viable over at least the next 36 months, one of the people said. SoftBank shares rose as much as 3.5% in Tokyo trading.

Son has been a keen supporter of founder Agarwal, helping fund the hotel company’s international expansion. Oyo had been growing at a rapid clip, but, as with other travel businesses, the outbreak of Covid-19 has side-swiped the company. Its reputation also suffered due to customer complaints about bad experiences along with grievances about poor or unfair treatment from several of the more than 20,000 hotel owners in its chain.

Furloughing employees is just one of a series of actions to be taken by Oyo, which include management pay cuts and a freeze on marketing spending. Agarwal will forego his entire salary for 2020. In January, even before the coronavirus outbreak reached pandemic proportions, Oyo had already fired thousands of employees and cut minimum guarantee agreements with hotel partners in an effort to stanch cash bleed.

Son and the 26-year-old Agarwal both have much at stake. Last year, the Oyo founder borrowed $2 billion to buy more shares in his own company, people familiar with the matter have said. Son personally guaranteed the loans to Agarwal, another person familiar with the matter has said.

Read more: SoftBank-Backed Oyo to Cut About 5,000 Jobs in Overhaul

Six-year-old Oyo increased revenue to $951 million for fiscal year 2019, from $211 million the previous year. Losses climbed to $335 million, or 35% of revenue, from $53 million as the startup expanded into China and other new markets. India accounts for about 40% of revenue currently but there could be no correlation between pre- and post-Covid 19 sales figures, said the person, who was privy to discussions.

Agarwal founded Oyo in India as a way to reserve budget accommodations online with reliable quality. With the backing of SoftBank, the company expanded internationally and was aiming to become the biggest hotel chain in the world by room count before the coronavirus outbreak. Its aggressive expansion has proven controversial after another SoftBank portfolio company, WeWork, crashed after attempting to go public.

Oyo also counts Airbnb Inc., Sequoia Capital and Lightspeed Venture Partners as investors. It promoted its real estate business chief, Rohit Kapoor, to CEO for India and South Asia in December to shake up the business.

Read more: SoftBank-Backed Brandless Shutters, Cuts About 70 Employees

(Updates with analyst comment from fifth paragraph.)

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