In Part 1, I made my 90-second pitch for Atour Lifestyle Holdings, walked through how a budget-hotel veteran built China’s leading upper-midscale hotel chain, and took the business apart piece by piece: the products, the unit economics, the customer, and the industry.
If you haven’t read it yet, I’d start there, because this part builds directly on it.
Deep Dive: Atour Lifestyle Holdings Ltd. ($ATAT) – Part 1
When Nicolas – we have two members with that name, so I guess this still keeps it anonymous – from my investing community posted his latest find in our WhatsApp community, I almost scrolled past it.
Now comes the part I enjoy most. A pitch is cheap. Anyone can list five reasons to own a stock, and the hard work starts when you try to break them. In this second part, I take a closer look at three of the eight pillars of my hypothesis (the one’s where I felt like I could actually add something meaninful new) and then try to stress-test each one.
Can a hotel room replace an ad budget, and what does the margin math say about the word “zero” in zero-CAC?
How does Atour grow with other people’s money, and what happens to that model when franchisees stop making money?
Why do hotel owners keep choosing Atour over H World’s Ji Hotel, even though an Atour costs more to build?
Can a hotel chain own a consumer category that critics describe as a piece of sponge?
And who owns the guest when 120 million loyalty members meet roughly 65 million room nights a year?
I will inevitably have to repeat a couple of points from part 1, whenever they are relevant for the pillar at hand, but this will strengthen your understanding of the business, I think. And then, for every pillar, I spell out the conditions that would prove me wrong and the metrics/numbers I’ll track to find out. Not all of them came out of the exercise unscathed.
PS: Atour was down close to 7% yesterday – and I was buying some more –, and is bouncing back 6% today. I could see this being a volatile stock in the coming weeks, and from a pure chart perspective, there’s more downside than upside in the near-term, I assume (this would deserve its own discussion though).
PSS: Let’s discuss the business in the subscriber chat:
PSSS: This makes me think it’s not the worst of times to look at Chinese stocks again:
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