SoftBank Group has slashed the valuation of Oyo Hotels on its books by more than 20% as once high-flying startup prepares for an initial public offering, people familiar with the matter said.
The Japanese investor, the largest shareholder in the hotel-booking firm, cut its estimated value for Oyo to $2.7 billion in the June quarter from an earlier $3.4 billion after benchmarking it against peers with similar operations, said the people, asking not to be named because the information isn’t public. The lodging firm had reached a valuation of $10 billion in a 2019 funding round.
Oyo, formally known as Oravel Stays, filed a fresh round of financial documents with India’s market regulator on Monday as it plans for a stock-market debut after cost cuts and recovery in travel helped it reduce losses.
The company expects approval from the Securities and Exchange Board of India for the public debut soon and aims to tap the market at a valuation of about $5 billion early next year, the people said. Oyo’s deliberations about its IPO aren’t final and its plans could still change, depending on market conditions.
The startup was targeting a valuation of about $9 billion in its IPO after preliminary conversations with potential investors, Bloomberg News reported in January.
In its preliminary filing in September last year, the company had said it planned to raise Rs 8,430 crore ($1 billion) through the sale of new shares and those held by existing investors.
A spokesman for SoftBank didn’t immediately provide comment. Oyo said it was confident that its valuation shouldn’t have been marked down given its recovering business performance, adding that it hadn’t decided on the timing for an IPO.
“We are confident that the above speculations about valuation markdown is patently incorrect. Valuation is an outcome of business performance,” the startup said in a statement. “We have not decided the exact timing for the IPO and the IPO valuation is also highly speculative.”
The latest filings from Oyo showed narrower losses and a rebound in sales for the year through March 2022 and the following three months. It reported a loss of Rs 1,890 crore for the year through March 2022, nearly halving from the previous 12 months.
But investors worldwide have sold down stocks this year as macroeconomic risks mounted, ascribing lower valuation multiples to tech companies.
The company has been one of the more controversial startup bets by SoftBank founder Masayoshi Son, with parallels to his support for WeWork and its eccentric founder Adam Neumann. Son has backed Oyo founder Ritesh Agarwal for years and urged him to rapidly expand in markets like Japan and the US — with disastrous consequences.
As an investor in hundreds of private startups, SoftBank estimates the value of its holdings each quarter and then books the changes as a profit or loss on its income statement. It reported a record $23.4 billion loss on plunging portfolio valuations and foreign currency losses in June quarter.