HotelTonight Raises Another $37 Million in Funding

Mobile-only hotel booking brand HotelTonight raised $37 million in a funding round, the company says.

Venture capital firm Accel Partners led the Series E round, which places a $463 million valuation on San Francisco-based HotelTonight, according to published reports. Also participating in the round are past investors Battery Ventures, US Venture Partners, GGV Capital, Coatue Management, and First Round Capital.

That brings HotelTonight’s funding total to $117 million to date. It has been three years since the startup’s last funding, which sources told us gave it a $320 million valuation.

In the summer of 2015, chief executive Sam Shank had struggled to raise a fresh round. Investors balked at the news that the startup was forecast to lose $37 million that year on revenue of just $33 million, according to a recent report by The Information.

Shank responded by cutting costs, laying off one out of five of his 200 employees.

One year ago, Shank told Recode that his company was conducting “difficult discussions” with hotels about the margins they can expect to make via bookings on its app.

The company says that in 2016 it doubled its revenue and added back employees. Its engineering team is at about 40 members, and the funding will be partly used to grow it.

Today HotelTonight and its investors tell Reuters that the company is now “profitable” — though that profitability claim “excludes a few non-cash expenses related to hotel occupancy taxes.”

One next option for the company is obvious. One of the major online travel conglomerates could acquire it. In 2015, Priceline looked at the company’s books as part of talks for a possible acquisition but decided against buying it, according to The Information. China’s Ctrip was also looking.

Last autumn, the company also floated the idea of going public. But the company’s small size doesn’t give it great odds of having a successful initial public offering.

HotelTonight was a pioneer in letting users book last-minute rooms via mobile devices speedily. The company has 25,000 hotels participating, depending on the day, in more than 30 countries.

Its app stands out from those of many competitors by prompting customers to choose from only a handful, perhaps 15, hotels, for any given search. The curated approach is meant to work better on mobile, and to help consumers who can be overwhelmed by too many choices.

It has been a pioneer in offering location-based rates and a chat-based concierge service for selected high-end properties. It says the addition of a loyalty program that rewards repeat customers with additional discounts has helped to drive gross bookings.

It’s unclear to what extent HotelTonight, without much household-name brand recognition, is truly a long-distance “travel” app as much as it is a “regional-usage” app. Business and leisure travelers tend to use it to book properties on the fly in areas they frequent for business — somewhat similarly to how Uber, OpenTable, and others apps are used more often by locals than foreign visitors.

After all, travelers can use HotelTonight to book ahead a week, at the most. And not many people, other than repeat business travelers and venture capitalists, fly to a destination and show up to book a stay when they land.

The problem of regional last-minute stays may not be big enough to justify $117 million in fundraising, though. So HotelTonight will need to compete against much better-funded companies Expedia Inc. and the Priceline Group to truly gain traction with travelers. The prospect of making headway against those two large companies is daunting.

Toward that goal, in August, HotelTonight debuted on the mobile Web after years of being app-only. That isn’t necessarily a needle-mover, though.