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OYO’s China collapse threatens Vision Fund returns

03/18/2020| 5:54:10 PM|

Despite being a glorified real estate company, OYO is a consumer internet company.

The rate of OYO’s demise in China is dizzying. No sooner had TechNode reported a 60% reduction in OYO’s China workforce, local news outlet Jiemian broke news of a further 3,000-head layoff. That brings the cull to 72% of OYO’s China workforce. 

Five of seven vice presidents involved in OYO’s China operations since the beginning have reportedly decided to jump ship. OYO’s chances of any type of comeback or recovery in China, its second-largest market, are slim to none.

Despite being a glorified real estate company, for SoftBank’s purposes, OYO is a consumer internet company. To date, SoftBank estimates the fair value of Vision Fund investments in the consumer internet sector is $15.8 billion. Analysts reckon anywhere between 20% and 33% of that figure can be attributed to SoftBank’s investment in OYO. Masayoshi Son has bet big on his favorite portfolio company.

Currently, it’s highly questionable whether that bet is anywhere near paying off. Overseas expansion is estimated to have lifted OYO’s valuation five-fold, so SoftBank wouldn’t be pleased with pullbacks and reversals in markets like China, the US, and Japan. Capitulation in OYO’s second-largest market, China, means the company’s current $10 billion valuation looks like a pipe dream.

As OYO attempts to pull itself from the brink of a WeWork-esque meltdown, SoftBank is keeping a careful eye on the damage bill. Tactical retreat from a couple of overseas markets and consolidation in India might be enough to salvage SoftBank’s investment. But, if OYO gets outwitted and outplayed in India, SoftBank could be starting into financial black hole. 

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TAGS: OYO | SoftBank
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