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Disrupters Series: Can OYO Be The Real Threat To IPO-Eying Airbnb?

|Includes: SEQUX, SoftBank Group ADR (SFTBY)

OYO closed billion dollar funding round led by Softbank.

Airbnb to go for IPO in late 2020.

Sequoia is a common investor in both.

Will they fight or marry?

OYO becomes India’s New Unicorn with $5bn Valuation

While walking on polluted streets of Delhi or in the charming lanes of Goa, boards with a red background and white OYO letters is hard to miss. However, the company was relatively unknown outside India, even in the startup world. The Fact that the company was already operational in China and that it announced plans to expand Europe didn’t make much news outside India.

All that changed overnight when news broke on September 25 that the closure of a billion dollar funding round led by Softbank (OTCPK:SFTBY) and host of other investors. JP Morgan (JPM) was the investment banker for the latest round. The investment takes the valuation of OYO almost to $5 billion, a five-fold increase in the valuation in a year!

Airbnb eyes an IPO

Just a couple of months before OYO got it's billion, Sequoia-backed (NAS: SEQUX, another investor in OYO) grown-up start-up Airbnb announced that it is planning to go public by June 2019 and would go for an IPO by late 2020. Airbnb was last valued at $31 billion in the last funding round in May 2017.

Airbnb is already a profitable company with $2.7 billion in revenues and #93 million in profits in 2017.

Will OYO conquer Airbnb’s market?

The latest funding paves the way for OYO to expand beyond its home market. Moreover, it has already started listing homes for renting, which is Airbnb’s turf. Airbnb is already battling a lot of regulatory issues which OYO can quickly learn from.

On the other hand, entering into Airbnb’s strong markets won’t be easy for OYO due to customer stickiness.

Will OYO-Airbnb create a travel behemoth?

A quick search through the list of investors in both companies can tell you that Sequoia (NAS: SEQUX) is a common investor in both these players. It’s typical of private equity funds to spread their holdings to competitors and with a hope that one of them will make a fortune. Take the example of Softbank’s vision fund, which is invested in uber, China’s Didi Chuxing, India’s Ola, and SE Asia’s Grab.

A strong possibility is that OYO will continue to put more focus on getting budget hotels on its platform while Airbnb will continue to focus on home rentals if they indeed decide to play amicably. This was, the two Sequoia stars will dominate the budget hotels and home rental industry together.

Another possibility is that OYO will continue to make inroads in Airbnb’s market. If that happens, Airbnb will finally have a muscular competitor in the showdown.

What does it mean to OTAs and consumers?

While established OTAs are trying to play a catch-up game, they simply can’t match the billions poured into risky startups by investors who bet on them.

In the first scenario where OYO and Airbnb play it amicably, OTA’s are going to be clear losers as OYO can pose serious threats to hotel bookings and Airbnb continuing to consolidate its leadership position in home rentals.

In the second scenario, customers and travelers are going to be the ultimate winners for some time to come! 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.