Leading up to Sonder's SPAC merger with Gores Metropoulos II, Sonder gave an investor presentation in November 2021 laying out the narrative and future of their company with amazing clarity and transparency. Below are the highlights from the presentation.
All pictures below are taken from Sonder's investor presentation, the entirety of which can be downloaded from Sonder's investor relations page.
Sonder's unique product offering in the hospitality industry
Sonder illustrates the downfall of 3 different product offerings in the lodging and travel space today. Starting from right to left:
- Unlike Airbnbs: Sonder's homes and rooms aim to provide a consistently reliable quality experience (e.g. solid WiFi, stocked kitchen supplies, customer service) — like hotels.
- Unlike big box hotels: Sonder aims to have inspiring, beautifully designed spaces (in addition to consistent quality) — perhaps like boutique hotels.
- Unlike boutique hotels: Sonder's price per night is approachable.
Usually a lodging provider would need to make a trade-off in terms of these 3 dimensions of price, design, quality consistency. Meaning, you can perform well in 2 dimensions but not in all 3. But Sonder is able to score well on all 3 dimensions. How?
Sonder's Secret Sauce
The way Sonder achieves this is through cutting out the fat in the hospitality industry through technology.
Many services like the front desk, concierge, customer service, cleaning are replaced with their app. But even outside of the stay, Sonder leverages home-grown technology to optimize backend operations (e.g. real estate targeting, warehouse and inventory management, logistics planning, etc.)
All this allows them to cut down on operating costs by as much as ~50%.
Takeaway: Regarding the 3 dimensions of price, design, and quality consistency, Sonder introduces technology to drive down the price dimension, so that it can score top marks on all 3.
Sonder's Market Opportunity
Sonder's TAM, the global lodging market, was $809B in 2019.
In terms of real estate supply availability, Sonder has just scratched the surface with only 0.8% of new apartment units to be contracted in their current US markets, and only 1.8% of global hotel units to be contracted.
Takeaway: Even with Sonder's phenomenal historical growth (and jaw-dropping estimated future growth), there will still be a LOT of room for even more growth in this core lodging market for many years to come.
Sonder's Financial Outlook & Forecast
Sonder forecasts their 2025 GAAP revenue to grow to a whopping $4B at a 103% CAGR (2020-2025).
Driven in part by increasing supply from 12k total units (live + contracted) in 2020 to 102k total units in 2025.
And improving their Revenue per Available Room (RevPAR) from $74 to $165.
With property level profit margins going from (54%) in 2020 to 32% in 2025.
And Adj. EBITDA margin going from (181%) in 2020 to 16% in 2025.
These margins being driven by post-COVID recovery, better lease agreements, and RevPAR and Property Level Cost initiatives.
Takeaway: Sonder is expecting insane levels of growth, and despite being in a capital-intensive business, sees a rapid path to profitability.
At a valuation of ~$2B and considering their estimated 2022 revenue, Sonder's revenue multiple would fall below the median multiple of upscale lodging companies like Hilton and Mariott, just above the median multiple of digital hospitality and real estate companies like Redfin and Tripadavisor, and below the median multiple of vertical disruptors like Uber, Doordash, and Airbnb.
Yet, their recent historical growth rate has been MUCH higher than the median of each of those industries. And their expected growth rate is also head and shoulders above the median of each of those industries.
Takeaway: Given industry multiples and Sonder's growth rate, Sonder's valuation seems like the deal of a lifetime.
Volt's Take and Price Target
In addition to the very compelling narrative and numbers presented in Sonder's investor presentation, Sonder's strategic advantage relative to both incumbents and potential new entrants makes us believe Sonder's stock has the ability generate over 1,000% return in the next 5 years. You can read more of our analysis on Sonder's strategic position vs. hotels in this post. We plan to have a multi-part series diving into Sonder's competition, strategy, leadership, and more. Sign up to our email list so you don't miss a thing.