One year after the pandemic brought on an “extinction-level event” for his online travel startup, Hopper Inc., co-founder and CEO Fred Lalonde is back on course building what his investors believe could be one of Canada’s most successful technology companies.
Montreal-based Hopper has raised US$170-million in growth equity led by Capital One Financial Corp. and also announced Wednesday it will partner with the U.S. credit card provider to power its travel-booking mobile app for cardholders. It’s the first of several expected partnerships between Hopper and other providers in the travel business. Past investors Goldman Sachs, Inovia Capital and Citi Ventures also backed the funding.
“This is the inflection point in Hopper’s history where their acceleration is surpassing even their own expectations,” said Laurence Tosi, former chief financial officer of Airbnb Inc. and The Blackstone Group, who invested in Hopper last year through his WestCap Group. “I think it will be the dominant player to create the first digital marketplace for travel.”
The financing values Hopper at close to US$2-billion, almost double the valuation of its previous US$70-million funding in 2020. It comes as Hopper is on pace to generate revenues at an annualized pace of US$200-million by year-end as pent-up travellers prepare to hit to the road in droves as pandemic fears subside.
“Hopper has a massive opportunity to scale fast with the recovery,” Inovia partner Patrick Pichette said. “If it does it can become one of the key brands in next-generation online travel agencies.”
Hopper has come through a turbulent period. After 13 years and burning through nearly US$200-million in venture capital, the company was set to soar in early 2020.
The company had been a darling of the global travel and business press for years for its innovative mobile app. Hopper leverages vast amounts of price-quote data obtained from global travel transaction systems such as Sabre and applies artificial intelligence to accurately predict the best times for people to book flights. One of its signature features: Hopper frequently messages its millions of monthly users not to buy, but rather wait until the price for their desired booking drops.
While that won Hopper buzz and big financings, and it added hotel and car booking options, its revenues lagged, reaching $17-million in 2019. ”Hopper had amazing technology but a very difficult business model historically,” said Mr. Pichette, whose firm had held off investing for years. “To me, it was still a research and development” company. Then, “they kind of hit on something.”
Hopper’s fortunes began to soar when it started adding ancillary financial services-like products two years ago, again leveraging its access to vast data sets from price-searching travellers. Now travellers could pay extra to freeze a flight price for several days, buy the right to cancel for any reason for full credit, rebook a missed connection for no extra fee or change a ticket to a different day without forfeiting the full ticket value. Hopper believed it could make money by pricing its offerings just right, based on algorithms and probabilities gleaned from its data, though it lost some initially getting the mix right.
According to a presentation shared with investors early last year, customers of the cancel-for-any-reason feature paid an average $32 premium but only 5.9 per cent cancelled, leaving Hopper with a 60-per-cent gross margin after refunds. It also drove higher rates of booking through the app. Eventually, “we think fintech will be a full-blown category” within travel worth US80-billion globally, said Mr. Lalonde, who sold his previous travel startup to Expedia.
By November, 2019, everything started to click. In February, 2020, revenue was up by 450 per cent year-over-year, to US$4.6-million, driven largely by the new financial products, which carried significantly higher margins than actual travel. “”You could see [the growth] from week to week,” Mr. Pichette said. Hopper was gearing up to raise hundreds of millions of dollars in fresh capital and told prospective investors it expected to surpass US$100-million in revenue that year, then more than triple that in 2021.
Then the pandemic hit. Until airlines agreed to refund tickets for cancelled flights, Hopper faced the possibility claims on its financial products would wipe it out. “We went from a high-growth company that was burning a lot of money on a very optimistic scenario to the zombie apocalypse,” Mr. Lalonde said.
He planned for the worst. Hopper laid off or furloughed about 250 people, just under half the staff, and was besieged by customer calls and e-mails seeking refunds, with fewer agents to help. Many customers, enraged by the slow pace of airline refunds and Hopper’s lack of communication, complained on social media and to consumer agencies as Hopper worked through the backlog. “Our communication to the customer was bad, and a lot of people freaked out,” admits Mr. Lalonde, who got thousands of calls and texts after his cell number was leaked online. “Every single customer that’s owed something through our platform will get what they’re supposed to.”
Hopper managed to secure US$70-million in fresh capital last May led by WestCap and Inovia; about half the funds came from Business Development Bank of Canada and Quebec’s investment arm, part of government-backed efforts to help tech companies hit hard by the pandemic.
Meanwhile, Hopper’s shift into financial services helped: Revenues managed to double in 2020 to between US$35-million and US$40-million as travellers continued to book lodgings and sign up for Hopper’s new products. Bookings, meanwhile, have skyrocketed in recent weeks; the company’s staff is back up above 400 people and it’s looking to step up its global expansion this year. “We’ve basically innovated our way out of arguably the worst period for travel since Howard Hughes,” Mr. Lalonde said.