Hosting startup Sonder believes it is set to continue disrupting the industry even after the COVID-19 pandemic is over, The Wall Street Journal reports. The company, which has a projected valuation of $ 2.2 billion after closing its merger with SPAC (special purpose acquisition company) Gores Metropoulos II, said 80% of its guests were traveling for pleasure. This is a key figure if business travel remains weak. Meanwhile, Sonder fans appreciate the fact that the company’s more than 350 global properties offer a combination of a hotel experience with what they love about Airbnb.
How Sonder works
Sonder has a mobile platform with technology that allows users to bypass less pleasurable aspects of a hotel stay, such as physical check-ins or calls for service and maintenance requests. The company said it could cut standard hotel operating costs by up to half, according to the Wall Street Journal.
The company contracts with apartment and hotel building owners to manage and operate their properties through lease, revenue sharing, or a combination of the two. Owners of commercial buildings found their options limited during the pandemic, allowing Sonder to negotiate more favorable terms such as more flexible leases and less capital spending.
While companies that offered shared workspaces saw their occupancy numbers drop during the pandemic and other hosting companies struggled, Sonder’s model remained strong last year. The company said that on average over the three months ended June 30, revenue per available room was about 1.4 times that of traditional hotels of 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 decline by almost 50%, while Airbnb’s fell 23%. Sonder expects its revenue to rise to $ 185 million at the midpoint of its outlook, a 29% jump from 2019, reports the Wall Street Journal.
Prospects for the future of Sonder
While Sonder has exceeded short-term performance expectations, there can be no assurance that this will continue. The company remains confident, however; it projected nearly $ 4 billion in revenue by 2025 in a recent presentation. The forecast translates into revenue growth of 2,000% in four years. Flexible office space provider WeWork forecast 118% growth in a similar period to the comparison, although it would operate from a larger base.
Meanwhile, hospitality investors believe in the demand for long-term travel, but are unsure how quickly primary accommodation can recover from the pandemic. Sonder’s model could offer an attractive alternative if CRE owners and travelers maintain their enthusiasm for Sonder’s value proposition as the pandemic abates. The question also arises as to whether Sonder’s influence over CRE owners will remain post-pandemic. Otherwise, maintaining a favorable unit economy will become more difficult for start-up. Currently, Sonder’s goal is to end the year with 8,000 units live, with 10,000 more under contract to be put into service in the next few years, according to the Wall Street Journal. Sonder expects 77,000 units to be operational by the end of 2025.
Nobody is perfect
Sonder travelers love the design and location of its properties, but stays don’t come cheap. The average daily rate was $ 147 across its portfolio in the second quarter, the company said. Prices also vary depending on the location of the property and the time of year. Two nights in a studio at a Sonder store in Austin, TX can cost over $ 700 for a weekend.
There is also the question of the customer experience. It’s contactless, but not without flaws. Reviews say construction noise is a possibility, while some guests have said they’ve been locked out of their rooms for long periods of time because the “digital concierge” was slow to respond. Other critics considered the Sonder concept to be “soulless” and “impersonal”. There is also no guarantee that a chef will be on hand to prepare meals for late arrivals.
Sonder’s revenue forecast for 2022 shows that the company’s valuation at 3.5 times sales is higher than that of Marriott and Expedia Group, but far lower than that of Airbnb, which is at 15.4 times the sales. sales, according to the Wall Street Journal. As the journey returns, investors will have to guess whether convenience or tradition is the future of accommodation, or if a “best of both worlds” platform like Sonder is the answer.
Joe Dyton can be contacted at [email protected]