Airbnb - OYO deal to help both entities capitalise on shift to branded hotels

Ruchi AgrawalMoneycontrol Research

Airbnb Inc. on April 1 bought a stake in OYO for an undisclosed amount. As per sources, the investment is around $150 - $200 million. This comes after OYO’s SoftBank-led $1 billion series E round funding a couple of months ago that had valued OYO at around $5billion.

OYO has now raised more than $1.7 billion from investors to date, including this new capital.

The deal will enable the listing of OYO properties on the Airbnb portal, providing an immediate boost for OYO. It will also enable faster growth for Airbnb in India by attracting travellers who find renting a home from a stranger risky. The deal will help Airbnb leverage on OYOs rising presence in China. Many argue that recent acquisitions are more a part of Airbnb’s strategy to showcase itself as a comprehensive travel company ahead of its proposed initial public offer (IPO) plans.

The deal highlights the growing attractiveness of the Indian hotel Industry in the global markets and the rising interest of international players to be a part of the rapidly growing market.

Globally, around 40 percent of the hotel industry is considered to be branded and the balance 60 percent made up of small fragmented boutique hotel players. With rising incomes, there has been a growing trend of flight of customers from the unbranded segment to branded. In India, we believe the branded segment is much lower than 40 percent and the pace of the flight is much higher.

Even as most branded hotel chains in India are focusing on capturing the budget market, players like OYO will gain more from a substantial part of this customer conversion. We believe added strength for OYO would bring in stronger competition for the Indian hotel companies in their budget hotel segments.

Follow @Ruchiagrawal

For more research articles, visit our Moneycontrol Research Page