Sonder Cutting 21 Percent of Corporate and 7 Percent of Frontline Staff

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The short-term lodging firm Sonder will lay off 21 percent of its corporate employees and 7 percent of its frontline workers as it restructures its operations, the company announced in a call with investors Thursday.

Sonder also plans to cut back on its expansion plans to focus instead on markets where the firm already has a large presence. The company cited a potential recession as a reason for tightening its belt and, like many other real estate startups that went public through a special purpose acquisition company, Sonder has seen its stock price drop more than 80 percent since it started trading in January. 

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“We have done our best to support our departing colleagues with care, dignity and compassion,” Sonder co-founder and CEO Francis Davidson said during the call. “We expect our unit economics and free cash flow to continue to benefit greatly from the anticipated recovery of urban travel, though we remain prepared in the event that a potential recession impacts the pace of recovery.”

Sonder expects to spend between $3.5 million and $5.5 million to restructure the business before the end of the year and save about $85 million thanks to the cuts. The company will pay benefits and severance to departing workers, Davidson said.

Davidson and Sanjay Banker, president and chief financial officer at Sonder, faced questions from investors about why the firm was cutting staff when it expects revenue to grow more than 140 percent year-over-year in the second quarter of 2022. Davidson said the market has shifted to prioritizing cash-flow positivity over fast-growing firms, causing Sonder to rethink its growth strategy.

And Sonder isn’t closing existing locations, just slowing the pace at which it plans to expand to new markets, cutting its upfront costs, Davidson said. The firm will continue to pursue opening its business in hotels and inked a deal last year to lease Wharton Properties’ proposed 26-story building at 25 West 34th Street for 15 years. Sonder also leases the second and 14th floors of the Financial District tower at 116 John Street from owner Silverstein Properties.

“Of course we are going to continue to sign new units,” said Banker. “It will just be with a greater focus and a much higher bar around [the] upfront capital outlays required [and] getting those to be fully landlord-covered.”

The lodging startup will shrink its operations even as the hospitality industry has begun to recover from the pandemic, which restricted travel and decimated hotel occupancy rates. Davidson said he remains “incredibly enthusiastic” about summer travel, and Sonder has seen a higher number of early bookings for the second and third quarters of the year.

Sonder did not immediately respond to a request for comment on whether its new strategy would affect its New York City holdings.

Celia Young can be reached at cyoung@commercialobserver.com.