Not sure If we should agree with this analysis.

Failure is an orphan and with hindsight it appears how the ship was always sinking. Saw closely how the short / long rental product of OYO shaped up so I think the reasons for Nestaway failure are a little different. Why I think so.

[1] The fixed rental full stack model is never asset light

- You correctly mention that Nestaway did not own the property (nor does WeWork with long leases) but like WeWork they did start with fixed rentals and doing so were free to upsell the inventory at any price like WeWork. The gross margins with with such models are definitely higher and not 15% - 20% as you claim. Note: Nestaway moved to the commission / revenue share model post COVID

- Nestaway / OYO and few others followed exactly the model that WeWork has where the supply and its price is fixed and then charges the user on demand, creating an elastic price

- Like WeWork or OYO, even Nestaway would have been successful in operating the full stack model for a longer time if not for CoVID or with a larger cash chest like the other two had

[2] Margin vs cost

- Material costs and depreciation have negligible effect on margins in such businesses. This could be clear if you look at their FS. Second they are easily secured with deposits so a 'broken tap' will not erode margins

- Rental products have strong local network effects. The problem is as much for WeWork as is for NestAway. You compete with local players on strong recall and a uniquely distinguishable/ standardised offering. Nestaway team just failed to deliver on the standardisation or did not focus long enough.

- Minimum Guarantees or fixed rents erode margins faster than any other head. This model is harder to execute for a short stay / rental product like OYO where you are almost selling every RN (room night) every day vs WeWork / Nestaway.

[3] Cash Flow intensive

- The only problem with full stack rental play is that every single room -> property -> cluster is your product that you plan to monetise. OYO championed the local CEO model for this to run a local P&L because the product is local. Cost of competition is difficult to bake in any business, harder if you compete local.

- WeWork and likes run negative P&Ls for almost all new locations. The nature of the business is that it expects you to invest in every local listing, that does not make it unworkable.

- The problem is poor execution. Their revenue went from 43cr in 2018 to 53 cr in 2019 and then to 90 cr in 2021. Changing to the fixed commission model did bring this down to 58cr which was expected. The revenue numbers are certainly not underwhelming.

This is indeed a capex first business with strong local effects. Very similar to WeWork. Why WeWork was able to turn it around and not Nestaway is just a function of capital and (founder) execution.

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Jun 5, 2023Liked by Abhishek from GrowthX

Great analysis Abhishek. But there are many other platforms working in the similar space like magicbricks, nobroker etc.. how did nestaway differ from them? What are some of the things these companies are doing which Nestaway did not do?

One thing I definitely can say is NestAway did not maintain transparent partner relations with the property owners, the staff kept changing and owners were absolutely clueless about what was happening with their property. I can say this based on my own experience as a property owner

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