S.J.M.P.OYO Hotels: Coming to America - Technological University Dublin
In this comprehensive presentation, explore the strategic decisions behind OYO's entry into the US market, financial analysis, SWOT analysis, and recommendations. Dive into the challenges faced, opportunities ahead, and the prospect of sustainable growth. Should Jakayla apply for the job? Uncover the insights and evaluations to make informed decisions.
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Presentation Transcript
S J M P OYO HOTELS: COMING TO AMERICA TECHNOLOGICAL UNIVERSITY DUBLIN S J M P CONSULTANCY
S J M P DEAN MURPHY FINANCE JANE MAHER MARKETING GRAEME PHELAN OPERATIONS SARAHJANE MCGUIGAN SALES MEET THE TEAM
S J M P Did OYO s strategy make sense? What challenges did it face & how could it overcome them? What were its prospects for the future? Was this business model sustainable? Would the business model translate to the US market? QUESTIONS TO BE ADDRESSED
S J M P Should Jakayla apply for the job? BUT MOST IMPORTANTLY ..
S J M P 6 5 4 3 2 1 0 ANALYSIS: Does the strategy make sense?
S J M P FINANCIAL ANALYSIS US India 450000000 Cost of room RevPar over 6 months 2000 14400 2000 7380 400000000 350000000 300000000 250000000 Return for OYO per room 454.5 1177.5 200000000 150000000 Time to ROI 2 years 8 months 100000000 50000000 2017 2018 2019 0 Equity Revenue Return on equity 467400000 467400000 567400000 120000000 416000000 148100000 26% 2017 2018 2019 Revenue Loss 89% 26% ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P SWOT ANALYSIS STRENGTHS WEAKNESSES 1. Huge growth in brand 2. Tech friendly to users & hotel manager 3. Millions of data points 4. High increase in occupancy 1. High growth has not equaled profit 2. High initial investment for franchise model 3. Still making a loss 4. Ethical questions over CEO OPPORTUNITIES THREATS 1. US market unbranded hotels 2. Global market = 160M room opportunities 3. China = continue expansion 4. IPO targeted 1. Unsustainable business model 2. All markets are awash with competitors 3. Competitors may become market leaders in US 4. Based on finances, you are a unicorn Relevance for Jakalya: How risk averse is she? Opportunity to work with a company that is scaling at such speed is a unique and will stand to her throughout her career. ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P TOWS What challenges does the company face, and how could it overcome them? EXTERNAL OPPORTUNITIES THREATS Brand growth Making a loss. STRENGTHS Relevance for Jakalya Unbranded hotels in the US can be leveraged. Continue to expand in to China. INTERNAL Reaching profitability is key. Where their strengths and opportunities lie could give her great marketing/HR experience however their threats & weaknesses means the future of the company is unclear. Franchise model requires high investment. WEAKNESSES High growth is not profitable but if we can address our business model we can capitalize here. Is a public offering realistic? ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P PORTERS VALUE CHAIN MARKETING & SALES OPERATIONS Key take out IMPORTANCE What are the prospects for the company going forward? PROCUREMENT INBOUND LOGISTICS FIRM INFRASTRUCTURE Technological approach gives them competitive edge, however we would recommend some changes to bring us to profitability. SERVICES HR LEVEL OF STRENGTH ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P SUMMARY OF ANALYSIS Where do we want to be? What will we answer? Where are we now? 1. OYO entered US market after seeing growth in India, China UK Japan. 1. Is OYO business model suitable / sustainable for the US. 2. Is funding sufficient for US penetration considering high initial investment for franchise model. 1. IPO 2. Growing US market & global share. 2. $1B recent VC investment with $300 marked for the US. 3. Trusted brand with tech savvy millennials. 3. Should Jakayla join OYO? 3. Continuing to reduce losses and get into profit ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
LIST OF ISSUES S J M P ISSUE PRIORITIZATION 1. Run rate reducing by 50 year over year Urgency 2. Business model scalability in US 2. 3. Expansion to US & Globally 4. 3. 7. 6. 4. Change business model to purchase High 5. 8. Prioritization 9. 5. CEO perception 1. 6. Branded hotels account for 71% of total. Low 10. 7. US overheads are causing issues 8. Franchise approach is new to the US High Low 10. Competition ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
EVALUATION & OPTIONS ISSUE ONE: Would the business model translate to the American market?
S J M P Would the business model translate to the US? No, however . ISSUE ONE: Making OYO business model suitable for the US OPTION 3. OPTION 1. OPTION 2. Overselling 100% of the rooms to get a return in 5 months. Increase US commission in line with India & China markets from 10% - 22% Algorithm adjusted to cater for US market overheads. ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P Would the business model translate to the US? No, however . ISSUE ONE: Making OYO business model suitable for the US. Affordability Opt 1 Increase US commission in line with India & China markets from 10% - 22% 1=unfavorable 5=favorable Impact ROI 5 3 Resources 5 Total 17 4 Opt 2 Algorithm adjusted to cater for US market overheads. 4 5 5 3 17 Opt 3 Algorithm adjusted to cater for US market overheads. 1 5 2 1 9 ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
EVALUATION & OPTIONS ISSUE TWO: Is the business model sustainable?
S J M P EVALUATION OF OPTIONS ISSUE TWO: Was the business model sustainable? WHAT WE HAVE TO DO NOW? WHAT WE KNOW? RESOURCES Make outside US profit generating to fund further expansion Industry ready disruption Low marketing 3x revenue growth High increase in efficiencies 44%-20%-10% Double digit positive cost margins $700M spend outside of US expansion ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P RECOMMENDATIONS RECOMMENDATION ONE: Is the business model relatable to the US. NO but . US. US. Business model is adjusted increasing commission from 10- 22% bringing return for OYO down from 2 years to 8 months. Algorithm adjusted to cater for US market overheads so rates for holders don not drop below previous lowest level. Apply cap to algorithm at $30 (50% of prev. lowest level.) ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P RECOMMENDATIONS RECOMMENDATION ONE: Was the business model sustainable? NO but . RATIONALE FEATURES ROI KPI S Raising commission is of part of strategy to further reduce losses and become profit generating before IPO. Adjusting algorithm allows hotelier to limit price drop while still keeping the room cost low for the customer. Higher commission still lower than the maximum booking fee charges by competitors. Return time is decreased from 2 years to 8 months. 2000 will return 22% 70% OCCUPACY RATE Hoteliers sees more attractive deal but occupancy not impacted as room cost is still low. $80 revpor = 5 month ROI *REVPOR = revenue per occupied room ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P IMPLEMENTATION ISSUE ONE: Was the business model sustainable? NO but . PHASE ONE HOW? 1. Begin conversation with existing franchisees 2. Negotiate increase in commission from 10-22% using rationale that adjustment in algorithm will cap level room can drop 3. Outline timeline for implementation to franchisees 4. Using current development resources adjust algorithm to cap at 30$ ANALYSIS EVALUATION RRECOMMENDATIONS IMPLEMENTATIONS
S J M P IMPLEMENTATION ISSUE ONE: Was the business model sustainable? NO but . PHASE TWO HOW? 1. Sign off from franchisees on the new commission agreement 2. Notification of date for implementation and internal testing of software updates. 3. Sign off from quality control on software updates 4. Production go-live on the specified date of software update for commission increase and $30 cap per room. ANALYSIS EVALUATION RRECOMMENDATIONS IMPLEMENTATIONS
S J M P RISKS & MITIGATIONS RISKS LIKELIHOOD IMPACT CONTINGENCY Franchisees reject commission increase 2-3 4 Tie commission increase to algorithm adjustment Issue 1. Algorithm cap deters customers from booking rooms, decreases occupancy levels a key metric 2 3 Adjust comms again and bring Rec 2 into conversation with US franchisees. ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P RECOMMENDATIONS RECOMMENDATION TWO: Conservative expansion plan to support revenue growth and market share How? Hire 2 x BD Managers for India & China 6 x field Sales reps $50,000 Total $550,000 $250,000 $300,000 Target Tier 1 Hotels Technology is key 4% market -disrupted the market with low price hotels -create high end model -go branded hotels (50% branded) ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P RECOMMENDATIONS RECOMMENDATION TWO: Conservative expansion plan to support revenue growth and market share PROJECTIONS Cost - initial investment of $500,000 12 month planning to launch Aim to have 10% revenue additional services by 2021. $140 million in Y1 Year 2 growth 3 x $420 million Year 5 Predicting 3 x $3Bn Rev ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P RISKS & MITIGATIONS RISKS LIKELIHOOD IMPACT CONTINGENCY Competing with AirBnB who are already established Tier 1 is high level up front investment 4 2 Bundling: -discounting full packages -marketing campaign Targeted top account list cash rich Tier 1 attractiveness partner. Issue 2. 5 5 ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P FINANCIAL ANALYSIS 1.4E+09 Revenue 1 year Base Worst Best 1.2E+09 US Market Available to spend Cost per room Number of rooms 1E+09 300000000 300000000 300000000 800000000 2000 2000 2000 600000000 150000 150000 150000 400000000 200000000 RevPAR Hotel Revenue OYO revenue Revenue 6 months Revenue 1 year 80 65 100 0 12000000 1432200 261376500 522753000 744170395 1144877250 9750000 2038823 372085198 15000000 3136650 572438625 1 2 3 Return on equity 4.5 4 3.5 Return on equity 1.74251 2.480568 3.8162575 3 2.5 2 1.5 1 0.5 0 1 2 3 ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P FINANCIAL ANALYSIS Asia Worst Base Best Available to spend 700000000 700000000 700000000 Cost of room 2000 2000 2000 Number of rooms RevPAR 350000 350000 350000 41 52 63 Hotel Revenue 14350000 18200000 22050000 OYO Revenue 1152305000 1461460000 1770615000 Return on Equity 0.60747805 0.478973082 0.395342861 ANALYSIS EVALUATION RECOMMENDATIONS IMPLEMENTATIONS
S J M P Should Jakayla apply for the job? BUT MOST IMPORTANTLY ..
S J M P THANK YOU TECHNOLOGICAL UNIVERSITY DUBLIN S J M P CONSULTANCY
