Hopper Inc., a rapidly growing Montreal travel-booking startup that uses data science and artificial intelligence to predict the cheapest time to book flights, is closing in on a $1-billion valuation after raising US$100-million in a financing led by the Ontario Municipal Employees Retirement System.
The deal is a rarity in Canada, marking the second consecutive large “growth” financing of a Canadian tech startup led by domestic financiers, after the Caisse de dépôt et placement du Québec led a $82-million investment in Hopper in late 2016. Past investors, including Brightspark Ventures, Accomplice, the Business Development Bank of Canada and new backer Citi Ventures, participated in the latest funding, which brings Hopper’s total financing to date to $235-million.
It’s the second time OMERS has led an investment in Hopper, after steering a US$12-million deal in 2012. That’s something many venture funds avoid, OMERS Ventures head Damien Steel acknowledged. But he said OMERS moved quickly and pre-emptively to head off foreign funding rivals because “Hopper is one of the only companies I know of in Canada that has literally no ceiling” to its opportunity. “This is a company that can one day displace the online travel agencies and redefine the way we book travel.”
It’s also the largest venture-capital investment for OMERS since it shifted its focus to the burgeoning Canadian tech sector in 2011, representing an investment of more than US$45-million by the pension giant.
Hopper, which typically ranks among the most-downloaded travel apps globally, takes a unique approach to selling flights. The company says its mobile-only offering can predict, with 95-per-cent accuracy, when travellers should buy to secure the lowest prices. It draws insights mining trillions of airfare quotes researched online over several years, obtained from global transaction systems such as Sabre.
Users tell Hopper when and where they want to travel, and the app not only provides a price estimate but also tells them if they can get a better deal by waiting, following up with push notifications. “Hopper is one of the only companies in the world that I know of that actually tells you not to buy,” Mr. Steel said.
That gives Hopper a unique insight into future transactions, potentially valuable information in the era of Big Data. Hopper recently added a hotel-booking service in more than 20 cities globally to its offering, and may look in the future to offer travel insurance and car rentals, according to Mr. Steel.
Hopper has also started using AI to suggest alternative destinations to customers, which now drives 25 per cent of sales, co-founder and chief executive Fred Lalonde said. “If someone is watching a trip from New York to Honolulu, there’s a 40-per-cent chance they’ll switch to Florida instead” at Hopper’s suggestion, he said. The company handles the booking transactions on its app for a percentage of the airfare, believed to be in the low- to mid-single digits. It earns between 10 per cent and 20 per cent for hotel bookings.
Mr. Lalonde co-founded Hopper in 2007 after working as a vice-president for Expedia, which bought his first startup. The founders built a data-driven engine to help vacationers “discover” trips. But after a travel writer stumbled upon Hopper’s price-prediction engine – a side feature of its website – in May, 2014, and told readers it could predict the cheapest days to book and fly, one million users flocked to the website within weeks.
Mr. Lalonde decided to change course, and Hopper launched its online-only app and online travel-booking service months later. It has been downloaded by 30 million people, and Hopper expects to reach US$1-billion in cumulative gross bookings this year and repeat that amount in 2019, translating into estimated revenue in excess of $25-million this year. With more than 200 staff, Hopper is not yet profitable.
Despite its rapid growth and innovative reputation, Hopper is still “quite small” in the mature, $1.3-trillion global market for travel spending, said Maggie Rauch, senior director of research with market research firm Phocusright. “It is very difficult to compete as a small online travel agency when Priceline and Expedia have such deep pockets to spend on Google,” she said.
Mr. Lalonde maintains Hopper will become a massive player in travel by sticking to its strategy.“Once we get into this multicategory ability to recommend and even package things together, I think we’ll to blow the doors off the category,” he said.