Hospitality technology platform Oyo, which has a major presence in GCC, has reported its maiden EBITDA positive quarter – at approximately $1 million in the April-June 2022 quarter – marking a change in tack in the startups sector’ business model to earn hard cash instead of burning investors’ money to chase growth.
Oyo’s announcement on turning EBITDA (Earnings before interest, taxes, depreciation, and amortization) positive – or operationally profitable – also comes ahead of its initial public offer (IPO).
The trend change in the startup sector comes in the wake of facing serious fundraising challenges of late due to concerns on ventures’ ability to earn hard cash from operations.
Startups, historically, have been burning investors’ cash, chasing growth and size.
An increase in overall gross booking value (GBV) along with its strategies to improve the unit economics has led to the India-born unicorn turning EBITDA positive in the latest quarter, Oyo said in a filing with the Indian market regulator.
Oyo has filed the draft red herring prospectus (DRHP) with Securities and Exchange Board of India (SEBI) on September 19 for its proposed IPO.
The startup said its EBITDA margins have risen to 0.5 percent in Q1 FY23 from – 9.9 percent in FY22 and -44 percent in FY21.
The on-going rebound in travel post-pandemic seemed to have helped the hospitality chain to turn its table on operations, with the company improving its monthly gross bookings value per hotel to $4,080 in the April-June 22 quarter, a jump of 47 percent from $2,774 in FY22.
Oyo said its vacation homes business monthly gross bookings per home have also improved marginally to $490 in the latest quarter of fiscal 23.
The on-going rebound in travel in the UAE and the larger GCC region, where the hospitality major has major operations, is said to have contributed significantly to the financial performance of the company in the recent months.
Top billed events such as Expo 2020 Dubai and IPL cricket matches have helped the UAE to be among the markets making fast recovery in the travel and tourism sector globally, even crossing the pre-pandemic levels.
An Oyo senior executive told Arabian Business that the Middle East and Rest of Southeast Asia region together contributed about $59 million till date.
“Our operations [in the region] posted strong business recovery in the last three months, with an average of 10 percent growth,” the Oyo senior executive said.
The company executive also said Oyo has invested $186 million in SEAME (Southeast Asia and Middle East) to create business opportunities, jobs and growth in the market over the last three years – from FY20 till June 2022.
Oyo is present across 105 cities in the SEAME region, including Dubai, Abu Dhabi, Sharjah, Muscat, Bahrain, Riyadh, Mecca and Medina.
As per the regulatory filing, the company also aggressively followed the inorganic route to grow its business, with the acquisition of Croatian vacation rental company – Direct Booker and the Denmark-based holiday home – Bornholmske Feriehuse, which was done only last month.
The two acquisitions indicated its intention to continue strengthening its position in Europe.
An indicator of unit economies, the company said its adjusted gross profit margin has seen a steady uptick from 33.2 percent in FY21 to 40.1 percent in FY22 to 41.3 percent in Q1 FY23.
Indian companies follow April-March as their fiscal year.
Industry experts said though India’s unicorn boom has crossed the $80 billion dollars mark in investments this year, when it comes to profitability, very few have managed to crack the code.
Only 23 of 100 homegrown unicorns are profitable currently.
While the race to profitability is a slow burn, many startups are now doing away with high-cash burning models, and define their paths to profitability, experts said.
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