Lodging startup company Sonder believes it is poised to continue to disrupt the industry even after the COVID-19 pandemic subsides, The Wall Street Journal reports. The company, which has a projected $2.2 billion valuation after its merger with SPAC (special purpose acquisition company) Gores Metropoulos II closes, said 80% of its guests travel for pleasure. That’s a key figure if business travel remains weak. Meanwhile, Sonder’s fans appreciate the fact that the company’s more than 350 global properties offer a combination of a hotel experience with what they enjoy about Airbnb.
How Sonder works
Sonder has a mobile-first platform with technology that lets users sidestep the less pleasurable parts of a hotel stay like physical check-ins or calling for service and maintenance requests. The company said it can cut standard hotel operating costs by as much as half, according to The Wall Street Journal.
The company contracts with apartment building and hotel owners to curate and operate their properties through a lease, revenue share or a combination of the two. Commercial real estate owners found their options limited during the pandemic, allowing Sonder to negotiate more favorable terms such as more flexible leases and less capital expenditures.
While companies that offered shared workspaces saw their occupancy numbers fall during the pandemic, and other lodging companies struggled, Sonder’s model remained strong last year. The company said on average during the three months that ended on June 30, revenue per available room was about 1.4 times more than traditional hotels within a similar class in locations where Sonder operates with occupancy rates of 50% or more. Additionally, Sonder’s revenue fell less than 19% in 2020. Marriott saw its revenue decrease by almost 50%, while Airbnb’s dropped 23%. Sonder projects its revenue to be $185 million at the midpoint of its outlook—a 29% jump compared to 2019, The Wall Street Journal reports.
Sonder’s future outlook
While Sonder has exceeded performance expectations in the near term, there no guarantees it will continue. The company remains confident it will however; it projected almost $4 billion in revenue by 2025 during a recent presentation. The forecast translates into a 2,000% revenue growth in four years. Flexible office space provider WeWork forecasted 118% growth during a similar time frame from comparison, although it would be working off of a bigger base.
Meanwhile, hospitality investors believe in long-term travel demand, but aren’t sure how fast mainstay lodging can recover from the pandemic. Sonder’s model could offer an enticing alternative if CRE owners and travelers maintain enthusiasm for Sonder’s value proposition as the pandemic subsides. There’s also a question if Sonder’s leverage over CRE owners will remain post-pandemic. If not, maintaining favorable unit economics will become more challenging for the startup. Currently, Sonder’s goal is to end the year with 8,000 live units, with 10,000 more contracted to go live during the next few years, according to The Wall Street Journal. Sonder expects to have 77,000 units live by the end of 2025.
Sonder’s travelers like its properties’ design and locations, but stays are not inexpensive. Average daily rate was $147 throughout its portfolio during the second quarter, the company said. Prices also vary depending on the property location and the time of year. Two nights in a studio at a Sonder location in Austin, TX can cost more than $700 for a weekend.
There’s also the issue of the customer experience. It’s contactless, but not without flaws. Reviews say that construction noise is a possibility, while some customers said they were locked out of their rooms for lengthy amounts of time because the “digital concierge” was slow to respond. Other reviews felt the Sonder concept felt, “soulless” and “impersonal.” There are also no guarantees that a chef will be on the premises to makes meals for late-night arrivals.
Sonder’s 2022 revenue forecast shows that the company’s valuation of 3.5 times sales is more than Marriott and Expedia Group, but much less than Airbnb, which is at 15.4 times sales, according to The Wall Street Journal. So as travel makes its way back, investors will have to take their best guess as to whether convenience or tradition is the future of lodging—or if a “best of both worlds” platform like Sonder is the answer.
Joe Dyton can be reached at firstname.lastname@example.org.