The struggle faced by OLA due to Covid-19: Case Study

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Late last year, the transportation platform OLA approached many investment firms for a new round of capital. They were seeking $500 million in what the company told investors would be its final fundraiser before an initial public offering (IPO).

Unlike most other Indian unicorns that showcased their high revenue growth numbers to attract new investors, Ola positioned itself as a soon-to-be profitable startup with a stable core business of cab service in India. They said fast growth would be supplied by lucrative international markets like the UK and Australia as well as newer transportation niches in India.

But then, the pandemic Covid-19 hit. After lockdown, Ola’s business collapsed, and like many other companies, OLA rushed to conserve cash. Last month, Ola cut 1,400 jobs, about a third of its Indian workforce, and informed it to the employees via email. “It is going to take a long time for people to go out like before. With more companies preferring to have a large number of their employees to work from home, air travel limited to essential trips and vacations being put off for better times, the impact of this crisis is definitely going to be long-drawn for us,” CEO Bhavish Aggarwal said. This is not just the situation of OLA alone, its arch-rival Uber cut 6,700 jobs globally, including 600 in India. Another ride-hailing firm Lyft has cut about 17% of jobs. Revenues and stock prices of these companies have gone down.

Ola stands to absorb a far bigger hit than any of these companies. Not only are COVID-19 cases increasing rapidly in Mumbai, Delhi, and Chennai, three of the company’s biggest markets, it could take up to two years for demand to return to pre-COVID levels, half a dozen former and current Ola executives said, on condition of anonymity. This year, Ola’s overall business will certainly shrink, denting its $6.5 billion valuations and delaying Aggarwal’s plans to take the company public by early 2022. A valuation drop will bring huge losses to its investors including Soft Bank Corp., Tiger Global Management, Matrix Partners, and others that have together poured about $3 billion into Ola since 2012. It could also reduce Aggarwal’s 7-7.5% stake in the company.

Aggarwal’s priorities for reviving cabs:

Aggarwal has set three priorities for the domestic cab business post-COVID:

  • Win shares from Uber as the market contracts.
  • Expand faster in areas better suited to the new environment.
  • Preserve cash by cutting costs like office rentals and marketing costs.

These tasks will be difficult. In post-COVID India, the $3 billion cab market will see a sharp contraction, at least in the ongoing financial year.

As the business in India declines, Ola could get a reprieve in its international markets. Since early 2018, it has established large operations in Australia, New Zealand, and the UK. Ola has had a mixed record in Australia and New Zealand where it has been able to challenge Uber in some cities while struggling in others. But the company also faces competition from Didi Chuxing, the Chinese transportation giant, and a small shareholder in Ola. Didi has been outspending its rivals in offering driver incentives and discounts which helped them in increasing their market share before the pandemic. Still, Australia and New Zealand have successfully contained the pandemic so far, and their economies seem to be rebounding, potentially providing Ola with an opportunity.

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