Sonder’s latest strategy: focus on hotels
Sonder is sharpening the focus on its hotel business and adding more units while managing its portfolio of apartments.
In its third-quarter earnings report on Tuesday, the San Francisco based company said that hotels now make up for 40% of the total units in its portfolio, compared to 30% a year ago.
The company launched its first hotel collection in July, and at the time, CEO Francis Davidson said he sees the brand Powered by Sonder, consisting of 23 independent hotels in around a dozen markets, as a “vast, vast opportunity,” particularly in major European cities.
In the third quarter, Sonder’s hotel product grew revenue per available room (RevPAR) by 8%, while RevPAR for its apartment product grew by 1%.
“We continue to see relative strength in our hotel product and moderate pricing pressure for our apartment product,” Davidson said in an investor call Tuesday. “This bifurcation is representative of the market trends with hotel RevPAR growing year-on-year, but alternative accommodation RevPAR decreasing across our geographies, particularly in North America.”
This has been a common theme among short-term rental operators and companies: pruning portfolios for optimal performance. We saw Inspirato and Vacasa do the same this earnings season.
Davidson said Sonder will focus on getting contracted properties up and running instead of scouting for new ones. “We’re collaborating with external advisers to implement a portfolio optimization program, and working to understand how we can mitigate losses related to these underperforming properties,” Davidson said.
Sonder grew its live units 30% compared to the previous year.
A focus on profitability entails not only making the necessary cuts, but also with right revenue management, determined by average daily rates (ADRs).
Davidson said that while Sonder has room for improvement on this front, its tweaked pricing strategy should show results in the coming quarters.
What’s new: reducing ADRs farther away from the targeted dates to build a better base of occupancy rather than dropping prices 7-14 days prior to the booking window.
“We leaned into a pricing strategy that focuses on building a better base of occupancy earlier in the booking window and enables us to have greater pricing power over the rest,” Davidson said. “Holding the price as we approach the date of arrival is actually a better strategy to drive stronger ADRs and stronger RevPAR,” he said.
Here are the numerical highlights:
- Revenue grew 29% year-over-year, to $161 million
- A 2% decline in ADR to $185, a
- A 1% decline in occupancy rates to 83%.
- Total costs and operating expenses increased by 17% year-over-year to $218 million,
- Sonder has $207 million in cash, cash equivalents and restricted cash and $197 million in total debt.
- The company narrowed its losses from $74 million the previous year to $64 million