Sonder’s Financial Performance and Outlook

Sonder Holdings Inc. is a leading global brand of premium, design-forward apartments and boutique hotels serving the modern traveler. In this article, we’ll take a closer look at Sonder’s financial performance, key business trends, and the outlook for the future.

Overview of Financial Performance

Sonder reported revenue of $602 million in 2023, a 29.5% increase from the prior year. This growth was driven by a 25.8% increase in “Live Units” (units available for guest booking) and a 32.7% increase in “Occupied Nights.” However, the company continued to operate at a loss, with a net loss of $295.7 million in 2023, compared to a net loss of $245 million in 2022.

The company’s costs and operating expenses increased by 5.9% year-over-year, primarily due to higher rent, cleaning, and payment processing expenses associated with the growth in Live Units and Occupied Nights. General and administrative expenses decreased by 15% as the company focused on reducing legal, professional, and tax-related costs. Research and development expenses also decreased by 21.8% as the company reduced headcount in this area.

One bright spot was the company’s impairment losses, which decreased by 27.9% year-over-year, indicating improved factors related to the valuation of its operating lease assets.

Revenue and Profit Trends

Sonder’s revenue growth has been driven by its ability to convert “Contracted Units” (units under contract but not yet available for booking) into Live Units and, to a lesser extent, signing new properties. The company’s Live Units grew by 25.8% in 2023, reaching over 12,200 units by the end of the year.

However, the company’s profitability remains a challenge. Sonder has incurred losses since its inception and expects to continue to do so in the near future. The company’s primary focus is to achieve sustainable positive free cash flow (FCF) as soon as possible. In 2023, the company’s FCF, excluding restructuring and lease termination costs, improved by $56.4 million compared to 2022, but it still remained negative at $119.6 million.

Strengths and Weaknesses

One of Sonder’s key strengths is its technology-enabled business model, which allows the company to offer a consistent, high-quality experience to its guests while leveraging technology to reduce operating costs. The company has also been successful in attracting guests through a variety of channels, including direct bookings, which are more advantageous as they do not incur channel transaction fees.

However, Sonder faces several challenges, including the need to continue scaling its business, maintaining its ability to attract and retain guests, and managing its cost structure. The company has undertaken a portfolio optimization program, which involves renegotiating lease terms and terminating certain leases, in an effort to improve its profitability and cash flow. The success of this initiative is critical to the company’s future performance.

Another weakness is Sonder’s reliance on debt financing, which has been a significant source of cash for its operations. The company’s debt obligations, including both capitalized and future paid-in-kind interest, totaled $196.3 million as of December 31, 2023, with $168.7 million classified as short-term. This debt burden, combined with the company’s history of losses, raises substantial doubt about its ability to continue as a going concern for at least the next 12 months.

Outlook and Risks

Sonder’s outlook is cautiously optimistic, as the company continues to make progress towards its goal of achieving sustainable positive FCF. The company has taken several steps to improve its financial condition, including a series of cost-cutting initiatives, securing additional financing, and entering into a strategic licensing agreement with Marriott International.

However, the company’s ability to reach its FCF goal is subject to various risks, including potential changes in travel demand due to macroeconomic factors, inflation, uncertainties associated with new property openings and the portfolio optimization program, and the company’s ability to achieve its intended cost reductions and efficiencies.

The company’s recent financing arrangements and licensing agreement are also contingent upon the successful execution of a number of critical milestones, the timing of which cannot be guaranteed to ensure liquidity is available when needed to meet the company’s obligations. As a result, Sonder’s management has concluded that there is substantial doubt, which is not alleviated, about the company’s ability to continue as a going concern for at least one year from the date of issuance of this report.

To address this, Sonder has engaged a financial advisor to assist in identifying and securing strategic alternatives and financing arrangements, continued its portfolio optimization program, implemented deep cost-cutting initiatives, and entered into the Marriott Agreement, which provides the opportunity to increase financial performance through revenue growth, cost savings, and future growth.

Conclusion

Sonder has made progress in growing its business and improving its financial performance, but the company continues to face significant challenges in achieving profitability and sustainable positive cash flow. The company’s ability to execute on its strategic initiatives, manage its cost structure, and secure additional financing will be critical to its long-term success. Investors and stakeholders will need to closely monitor Sonder’s progress in the coming years as the company works to overcome the substantial doubt about its ability to continue as a going concern.