Will Oyo’s float sink?

This week saw Oyo get closer to its billion-dollar IPO, but the sector is no clearer as to what that can possibly mean.

As we saw with Airbnb, just because you’ve gone public it doesn’t mean that the public understand what you are. According to The Internet, Oyo is a “six-piece Appalachian roots band whose performances are part honky-tonk, barn dance and indie rock”. Sounds like a night out.

The band has released its debut album which, the local press informs us, sees the band “encounter the heartache of complicated relationships and the ecstasy of connection” so maybe, just maybe, it’s the same Oyo after all.

As Oyo was courting potential investors, the group remained the subject of a number of unedifying investigations, on subjects including tax evasion.

Hotels association Federation of Hotel and Restaurant Associations of India went as far as to file complaints against Oyo with SEBI asking the markets regulator not to approve the company’s IPO.

Oyo’s complicated relationships have included a somewhat bumpy expansion in the US, despite the rebranding of the marvellous Hooters hotel in Las Vegas. 

Observers of Oyo in the wider financial press are looking at the group in comparison with ‘other tech stocks’ serving to remind us – as we had with Airbnb – that the group is not a hotel company, but a tech company. 

Masayoshi Son, founder, chairman & CEO at SoftBank, called Oyo “next-generation type of hotel management. OYO is not a travel agent. OYO manages hotel comprehensively with OYO’s management, with OYO’s IT, OYO’s booking technology and OYO’s quality control method. It’s like a franchise.

“OYO helps [owners] to get people and increase the occupancy of the rooms. So in return for that, the profit will be shared with OYO and hotel owners. And what they do is to create heat map with AI for demand production. And with AI, they decide pricing. So per day 43 million micro-optimisations take place by looking at the weather, looking at day or week, looking at what kind of campaign is ongoing. Because depending on that kind of situation, demand-and-supply balance is different. So dynamic pricing takes place – 43 million micro-optimisation per day. Without AI, you can’t do such micro-optimisation. I believe this is the most advanced hotel management.”

Yet while the view remains that it’s tech, while tech stocks are looking more volatile, particularly now that office workers are returning to being able to see the backs of each others’ heads – Oyo is able to take advantage of the interest in hotel-related stocks.

And again, as with Airbnb’s colossal IPO, the group is expected to remove some of the wall of money desperate to get into a market which is seeing a stronger rebound than retail and office. And – whisper it – not making a profit isn’t too much of a concern if you’re just looking to ride a share-price bounce. Shares in Marriott International were, at the time of writing, well above 2019 levels. And 2018. And way above 2017. See also Hilton.

So one can quite see the ecstasy of connection, if not the ecstasy of long-term investment. 

What does Oyo mean for hotels? It’s worth noting that Airbnb holds a stake in the group, with no confirmation of whether it plans to offload it. The question, which also mostly perplexes the brands, is whether it is just distribution – and is that what owners want?

What we are seeing during the pandemic is that investors are starting to appreciate that strong experiences drive proper loyalty and ancillary revenue. For those offering the bare bones, the time may have passed. 

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