In a quiet morning for market-moving news, a significant deal has been struck in the hotel industry. Marriott (MAR, Financial) and Sonder (SOND, Financial) have entered into a licensing agreement, adding SOND's properties to the MAR system. SOND, which had a market cap of just $29 million as of last Friday and has struggled since going public via a SPAC in January 2022, also announced securing $146 million in new financing. This news has sent SOND shares soaring, as its revenue growth prospects and balance sheet health have both improved significantly.
- SOND is unique in the hospitality industry, owning and operating apartment-style properties primarily in urban settings. The company's 10,500 rooms—9,000 of which will be added to MAR's portfolio this year—will help MAR expand into the longer-term accommodation market. This addition has allowed MAR to increase its FY24 net rooms growth guidance to 6.0-6.5% from the previous 5.5-6.0%.
- MAR will receive a royalty fee based on a percentage of SOND's gross room revenue. In a win-win scenario, SOND's properties will be available through MAR's extensive distribution channels and included in MAR's loyalty program.
- The financial implications for SOND are potentially massive. The company, which has never been profitable and has faced accounting issues, expects the agreement with MAR to significantly boost revenue and RevPAR over time. For context, SOND generated $439 million in total revenue for the nine months ended September 30, 2023, with an operating loss of $(183.7) million for this period. Its RevPAR for 3Q23 was $153.
- SOND has also improved its balance sheet by increasing liquidity by $146 million through new convertible preferred equity and monetizing existing security deposits with current noteholders. This funding will help finance the initial integration costs of the MAR agreement. Over time, SOND expects substantial cost savings as improved distribution channel mix and preferred distribution channel rates lower customer acquisition costs.
The main takeaway is that this licensing agreement appears to be a win-win for both companies. However, it has the potential to be a game-changer for the struggling SOND, which stands to benefit significantly from MAR's extensive marketing and distribution capabilities.
