Thread by @somehotelguy

1/56 SomeHotelGuy’s take on Sonder. Quick disclaimer – I have nothing to do with Sonder, I’m not particularly smart, and I’m in no way a securities analyst. This isn’t investment advice.

2/56 My goal here is to look at the investor presentation and see where things don’t quite add up from a traditional hotel perspective. Maybe there’s knowledge outside this deck that causes it to make more sense, but if so I don’t have it. I’m going to try hard not to be a jerk

3/56 So let’s kick off!

Pg 9. “50% Operating cost reduction” – footnote says, “Versus traditional hotel operating costs.” That’s some real, real good data sourcing and backup. What costs, from what basis, compared to what competitors?

4/56 “70+% customer satisfaction scores” – been a bit since I looked at the charts, but I believe most hotel brands target 80% or greater in guest surveys.

5/56 “<2% share in current markets by 2025”, but current markets are defined as 100% of the global hotel market and 100% of the US apartment market – those are two VERY DIFFERENT THINGS! Apartments are long-term rentals, generally with a bare minimum of 1 month.

6/56 Average length of stay for hotels is under 2 days. Which is it? Where do you compete? “3 month payback period” – I’m just a dumb hotel guy, so can anyone explain this footnote? “Based on late stage pipeline deals in lease negotiation and LOI as of 12/31/2020.

7/56 Payback period defined as the forecasted number of months it takes for a deal's cumulative cash flow to turn positive based on Sonder's internal underwriting process.”

Pg 10. The only choices are boutique hotels, big box hotels, and STRs?

8/56 What about 2/3 of the hotel industry including luxury, upscale, midscale, and economy? And how does this encapsulate 100% of the US apartment market, like they talked about above? Very different definition of the market than on the prior page.

Pg 12.

9/56 “Our long-term goal is to become the leading brand within… the addressable lodging market”. So, they’re going to take down MAR? How? The “Tech-enabled, modern service; consistent, high quality; Exceptional design; Compelling value” from the prior slide?

10/56 Is someone going to tell me MAR doesn’t have those things? Let alone HLT, IHG, H, Accor, Jin Jiang? Also, a few times they’ve noted they compete with Upper Upscale hotels.

11/56 They’re going to be bigger than those guys who have 1,000s of units in midscale and economy with upper upscale that isn’t even being developed much anymore?

Pg 13. Sonder is “lower cost” to Guests.

12/56 A few reference points, all from FDDs & publicly available: 2019 Hilton US RevPAR = $145.59; 2019 Hyatt Regency US RevPAR = $130.96; 2019 Westin US RevPAR = $136.08 (Franchise only); 2019 Marriott US RevPAR = $116.46.

13/56 Most project US market back to 2019 RevPAR levels in 2024. Sonder 2024 projected RevPAR? $156. Sonder is not “lower cost” to Guests if it hits its projection, and if it is “lower cost” to Guests it will come nowhere near its projection.

14/56 Pg 14. “Traditional hospitality still relies on antiquated services” like room service, concierge desk, front desk, taxi stand. I have direct, firsthand experience with hundreds of existing hotels.

15/56 I’ve also got pretty good knowledge of how the branded hotels in the US work (70%+ of the industry). While they all have front desks, a small – declining – percentage have any of the other 3.

16/56 Front desk isn’t much of a cost driver, and it’s critical for service recovery, safety / security, and accounting.

Pg 15. The only 2 pieces here not done by the major hotel co apps are 5 and 6.

17/56 For 5, many use Kipsu or ALICE or similar, which text guests and is less cumbersome than via App, and for 6, I literally could not tell you the last time I actually checked out of a branded hotel instead of them just emailing me my folio. Remind me what the edge here is?

18/56 This is price of entry into the space.

Pg 16. Literally every one of these things exists within the big hotel companies. Heck, I built #1 more than 10 years ago for an international hotel co. This isn’t cutting edge at all; it’s price of entry.

19/56 Pg 17. 50% lower Operating Costs! Wow! But what costs? The ones listed on the right? What is “Operations” in the top right box? The note is almost unreadable, but references check-in, messaging, central call centers.

20/56 These are not big drivers of cost for hotels… An example: a 125 key select service hotel that runs 75% annual occupancy. That’s got you cleaning ~94 keys per day, so you’ll need ~9 FTEs in Housekeeping. For Front Desk?

21/56 You’ll need maybe 5.5, and that’ll include doing non-check-in things a Sonder will need to do anyway (like night audit). So, what, you saving 1 or 2 FTEs? That’s not going to chop 50% off the operating costs of a hotel.

22/56 For “call centers” – most branded hotels have the option to funnel 100% of calls to the front desk to the brand’s call center; some use it, some don’t, because it isn’t always the right / profitable decision to do!

23/56 In short, they’re making a bold claim about op costs but providing exactly zero backup.

Pg 18. “We partner with artists, architects and designers to bring extraordinary spaces to life.” So does literally everyone in the upper upscale hotel space.

24/56 Price of entry, not differentiator.

Pg 19. 300+ properties with ~12K units. Let’s be generous and assume 300+ = 325 (it doesn’t) and ~12K = 12K (it doesn’t). That’s 37 units (we call them keys) per property. Let’s remember that number for later too, esp.

25/56 b/c going from 37 key hotels to 300 key hotels is HARD, nearly impossible if you expect to do so with other people’s $. Dramatically different skill sets.

Pg 20. I hope they kept the two-story fish tank in the Flatiron Hotel.

26/56 I used to love having a few drinks & watching them swim by

Pg 22. Are they sure these are #s to brag about?

Pg 23. On the surface these are pretty good #s in 2020, but at 37 units per property, a high occupancy says basically nothing. Also, who are you competing with?

27/56 If you’re competing against large urban upper upscale hotels, it’s a good occupancy. Competing against apartments it’s a terrible occupancy. Competing against extended stay hotels, it’s “meh”.

28/56 A compelling version of this chart would be “Sonder vs sub-50 key hotels”, and I’m pretty sure it would be showing a dramatically different story.

Pg 24. Young domestic leisure travelers are the most price inelastic. A cheaper, similarly shiny object comes along? Uh oh.

29/56 Pg 25. Now we’re including Midscale, Upscale, and UUS in the hotel market? Why does the market change on every slide? This is different than pages 9 and 10. Also, I thought they compete against upper upscale hotels? What is the actual TAM? Cherry picking is bad…

30/56 Pg 27. As a public company, how are they going to be accounting for the fixed leases? Pretty sure you’ve gotta carry 100% of that on the books. And 100% of the fixed portion of mixed leases. Rev. share? That’s just a good old fashioned hotel management contract.

31/56 Nothing revolutionary there. 22% is the property level profit goal? That’s pretty middle of the road, to be honest. Unless we’re talking a luxury or big box union hotel, that’s not a number I’d brag about.

Pg 28.

32/56 How is this different than literally any other hotel company? This is the business plan of every single hotel brand / operator, except “Investments in tech”. Tech is not a long-term moat in hospitality.

33/56 If what Sonder does is so much better, I guarantee MAR and HLT can have their own versions built and running on a much larger platform in under 2 years.

Pg 30. I know one of these people. He’s a good guy.

34/56 Still find that thing where one guy didn’t actually work for the company he’s listed with (at least per LinkedIn) weird. For many of these folks the company listed is one they worked at years, or even over a decade, ago. Also weird.

35/56 Maybe I don’t understand SPAC M&A pitches?

Pg 32. 77K units in 2025! Up from 12K today! Ok, so let’s assume their average unit gets bigger going forward – 50% larger than today, or 56 units.

36/56 That means they need to sign up 1,160 new hotels in four years and lose 0 during that time. It took Courtyard by Marriott as a brand from 1983 to 2015 to achieve 1,000 hotels globally.

Pg 34. As I said, this isn’t how RevPAR works.

37/56 From 2018 to 2019, the company grew keys 3x and RevPAR fell 6%. Mind you, the industry in the US actually grew RevPAR in 2019 by 0.9%. So we’re expected to believe that they can grow key count 5.5x and grow RevPAR (over 2019) by 12%?

38/56 When the industry is expected to be ~2% – 4% above 2019 in 2025?

39/56 Some good data references: MAR Full Service & Luxury in North America did $147.53 RevPAR in 2019 (per 10-K) in 1,159 units (awful similar to the 1,160 above, no?). Remember: this INCLUDED Ritz-Carlton, St. Regis, Edition, W, The Luxury Collection, and JW Marriott, so the…

40/56 …pure upper upscale (what Sonder claims to compete with) was materially lower. As we saw above, they’ve explained no clear differentiator – everything they do is table stakes. Further, do you how many markets do you need to be in to hit 1,200 hotels?

41/56 Courtyard is in every state and province in NA and (if I had to guess) ~800 different markets to handle their 1,050 US + Canada hotels. You think there are 800 markets where you can get a $170 RevPAR? Maybe the top 5 markets in the US reliably clear that annually?

42/56 I mean, c’mon… You can do this in onesies and twosies, but at the kind of scale they need to meet their growth claim?

Pg 35. Let’s talk total revenue.

43/56 I tweeted earlier noting that Courtyard in 2019 did ~$3.3B in Rooms Rev in 2019, but someone took umbrage with CY as a RevPAR comp (it was a total revenue comp, including size, but we’ll work to adapt).

44/56 Since Sonder is Upper Upscale (depending on which slide we’re looking at), let’s use Hilton – the highest possible RevPAR comp among big UUS brands. There were 197 mature Hilton hotels in the US, averaging ~300 keys per hotel, so ~60K keys.

45/56 Smaller than the 77K estimated at YE 2025. Looking at rooms revenue only (Sonder doesn’t do B+C or F+B) and using the FDD-based RevPAR, we get $3.14B in revenue, or $53K per key. Sonder with 77K units and a $170 RevPAR is $51K per key.

46/56 The next guy down is Westin at $49K per key. A MAJOR reason they’re able to get this is the F+B and B+C business. If we narrowed down to just Transient, these #s would be much lower.

47/56 So, Sonder expects to be over 1,000 hotels with the 2nd highest rooms rev / key among the big brands in 5 years coming up from the bottom while increasing rev / key?

48/56 And with an order of magnitude more hotels than its competitors, increasing the likelihood of a few stinkers?

Pg 36. So, 2022E assumes a 0% wash factor on signed but not open units. And 37% of the Revenue is from units they’ll sign and open in the year / for the year.

49/56 They claim they’ll add 100% of their YE 2021 Revenue in-the-year-for-the-year in 2022. No. Chance. That’s not even possible in a light franchising model, let alone a lease / mgmt. contract model.

Pg 38.

50/56 21% EBITDA margin (who knows what the “adjustment” is, but I’d guess its not one in favor of transparency) and $20K / key in property-level EBITDA are both nothing special, and in markets where they’re achieving a $170+ RevPAR are frankly pretty disappointing for a…

51/56 …concept that supposedly has minimal expenses. I’ve seen a $200 RevPAR hotel run 50% EBITDA margins. That I’d brag about, not this… Quick comp – In 2019.

52/56 Host Hotels & Resorts (largest public hotel REIT in the world, lots of union hotels) did a 29% hotel-level EBITDA margin and $31K / key on same store hotels. Apple REIT, with all limited service hotels, did ~$14K / key in EBITDA. VERY open to a better public comp here.

53/56 Ok, I’m going to stop there.

54/56 Some unanswered questions: (i) who does Sonder actually compete with?; (ii) what does Sonder actually do differently operationally?; (iii) how will Sonder get those RevPAR numbers?; and, (iv) why will hotel leases work for Sonder when they don’t work for anyone else?

55/56 This entire thing reads like it was written either by someone with no understanding of the hotel industry OR to snooker folks who don’t understand the hotel industry. Pretty sure if I’d put this pitch deck together when I was a brand deal guy I’d have been fired.

56/56 I won’t tell you what to do with your $, but I will not be investing.