Aiming high and working for it

With its Korean benefactor driving it forward, Zen Rooms has gone from struggling to a position of strength with a focus on the Philippines rather than more hotly-contested Indonesia.

“Yanolja has decided to double down by reinvesting exactly one year after their initial investment,” Zen Rooms co-founder and managing director Nathan Boublil told The Ken via email.

What is the future?

He claims the company has quadrupled its revenues since Yanolja’s first investment. The next phase will see Zen Rooms tap the Korean firm and Booking Holdings, which operates Booking.com, Agoda, and others, for technology and distribution opportunities.

Flush with cash from its two recently-concluded funding rounds, Saberwal is finally getting to the serious building stage. But this doesn’t mean an OYO style blitzkrieg through—RedDoorz is eyeing sustainable growth.

The next step for the company is an expansion into Thailand, which will become its fifth Southeast Asian market after Indonesia, Singapore, Philippines, and Vietnam. The company is in the process of hiring a lead to handle expansion into the country.

RedDoorz has increased its headcount to 1,200—including tech teams in the north Indian city of Noida and (soon) Saigon in Vietnam. By the end of 2020, RedDoorz is looking to triple its inventory—from the present 1,500 properties to 4,500. Complemented, of course, by significant growth on the customer side.

Forecast representation

“Our numbers are doubling every six months,” he said. “If we can grow at 2.5X in 2020, don’t do anything stupid, and just focus on the business and raise capital at right time, there’s a chance to do 2.5-3 million occupied nights per month by December 2020.” That forecast represents a major boost from the one million milestones that he projects will happen in December 2019. If it achieves this, the company has forecast annualized sales of $500 million by the end of 2020. This $500 million, though, is total revenue across the platform as a whole, not take-home money for RedDoorz.

“By any metric, we can be a billion-dollar company,” Saberwal says. “It’s not pie in the sky now as far as I’m concerned.”

The competitive landscape is unclear on that front. While OYO is spreading through the region, it is unclear how well it has executed. In Indonesia, the company owes unpaid fees to a multitude of third-party service providers, two sources with knowledge of the situation told The Ken. There’s little doubt that the company can afford to pay these vendors back—aside from the aforementioned regional investment pledges, OYO is in talks to raise $1.5 billion, which would take its total funds raised past $3 billion.

Region facing hurdles

With its expansion in the region hitting hurdles, OYO announced in August that Mandar Vaidya, a 15-year veteran of McKinsey, would head its Southeast Asia and the Middle East operations. The firm is keen to dismiss any suggestion that there could be a repeat of China, where OYO is reported to have made layoffs due to “unethical practices” despite initial claims of rapid success. OYO has denied the allegations of layoffs in China.

While OYO’s issues in the region are cause for hope for RedDoorz, investors are still treading with caution. “We thought they were the best performing in that sector, particularly in terms of reducing dependence on OTAs (online travel agencies) for customers. But there was still a lot of noise and competition in the region, most notably from OYO,” a prominent investor who passed on investing in RedDoorz told The Ken on condition of anonymity.

Business models

According to one VC professional, uncertainty around the viability of the RedDoorz business model puts their firm off a potential deal. Despite that, the person said that RedDoorz now “has a good window of opportunity” given OYO’s broad focus on global markets.

But there’s also a wider concern around the more fundamentals elements of the business.

“By combining single hotels under one brand and using one technology stack, the budget hotel network definitely creates synergies of scale. These are hotels that would no way have mobile solutions or new types of POS individually,” said Bart Bellers, CEO of Singapore-based travel, tourism, and hospitality fund Xpdite Capital Partners.

“But basically they are building their own hotel, and ultimately they are stuck with long term leases. What if there is a downturn in the tourism industry? That’s a big risk.