Chewy Inc. Taps Into Millennials To Fuel Huge Spurt Of Growth

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About: Chewy (CHWY)
by: David Evans
Summary

Chewy is the king of ecommerce in the pet industry, which is already worth over $70 billion.

The company is betting its future on millennial customers who love to spend big on pets.

Chewy isn’t yet profitable but the company has been drastically improving revenue lately.

We don’t yet know where Chewy is going to make its debut, though its ticker is CHWY.

Pet lovers everywhere are rejoicing following news that Chewy Inc. (CHWY), a company focused on the growing trend of "pet humanization," has announced it intends to go public in a blockbuster market debut that will be fueled by the company's deep connections to a large millennial customer base. Americans spend tremendous sums of money on their pets every year, and younger generations in particular have shown plenty of indications that they intend to continue this trend in the foreseeable future. Chewy's success in marketing to "pet parents" demonstrates the company knows its market well.

Here are the inside details on Chewy's forthcoming market debut, and what investors need to know about "pet humanization" and how it will boost the company's future performance.

Chewy is the king of pet ecommerce

The first thing that prospective investors need to know about Chewy is that the company is the king of pet ecommerce, having already established a massive fanbase for itself among a millennial audience that's infatuated with spending endless sums of cash on their beloved pets. Pet care is no laughing matter in the developed world, with pet owners in the United States spending large swathes of their salaries each year on medical treatments, doggie beds, toys, and various other necessities and goodies for their pets. According to the American Pet Products Association, for instance, an estimated $75.38 billion dollars is going to be spent on pet industry expenditures by the end of this year alone. By tapping into "pet humanization" trend and catering to millennials with its focus on streamlined digital operations, Chewy is well-suited to remain the king of pet ecommerce for years to come.

This is excellent news for Chewy, as the company has established itself as a leading source for many pet products. Chewy wants to be a convenient online destination for pet owners everywhere, enabling you to pick up chew toys or special treats regardless of where you live or what your level of income is. The company's digitization of the pet industry could seriously pay off as millennials grow older and gain larger salaries for themselves, finally finding themselves capable of splurging on luxury products like pet care. Investors who believe that the future is digital thus have strong reasons to bank on Chewy's continued success in the thriving millennial market.

Still, the details behind Chewy's forthcoming IPO aren't entirely known as of yet; according to filings made with the SEC ahead of its market debut, for instance, Chewy has yet to determine how many shares it's actually going to be offering the public. Furthermore, the company has noted that its ticker symbol will be "CHWY," but hasn't yet revealed if it will be debuting on the NYSE or NASDAQ. It also hasn't specified how it intends to leverage its IPO proceeds, though it claims they'll be used for general corporate purposes, likely to fuel further growth.

Chewy is owned by PetSmart

According to Chewy's prospectus, the company is predominantly owned by PetSmart, which means the company will find it easy to continue scooping up pet lovers and turning them into loyal customers. There's little doubt that the dual trends of digitization and "pet humanization," wherein pets are coddled and spent on like children, will continue to grow in the future, thereby bolstering Chewy's prospects. By continuing to tap into the robust pet care market, the company can continue to radically inflate its revenue streams, which have been on the up and up lately.

Previously, PetSmart acquired Chewy for $3.35 billion in what was the largest ecommerce acquisition ever. While we're still uncertain of Chewy's total valuation, it's largely expected that the company could be valued somewhere between $4 billion and $4.5 billion. The company is losing money, however, which could concern some investors regardless of its large valuation. This isn't entirely gloomy news, though, as Chewy has managed to cut back on its losses in recent years; whereas the company recorded $337.8 million in losses in 2017, for instance, it trimmed that down to a thinner $267.8 million in 2018. Chewy is thus obviously committed to streamlining its operations, and there are plenty of reasons to favorably view the company's profitability in light of the growth the pet industry is going to experience.

Chewy bolstered its revenue stream by a whopping 68 percent from 2017 to 2018, for instance, demonstrating that the company is eagerly moving forward with intentions to scoop up as many pet owners as possible. This is good news, as millennials are demonstrating themselves to be the most pro-pet generation yet, and the company's digital focus has helped them cater to a youthful audience. An amazing 44 percent of millennials see their pets as "starter children," which has helped fuel a "pet humanization" trend wherein golden retrievers are pampered and lavishly spent upon in the same vein as young children. This means that Chewy's future will come down to catering to millennials who are willing to spend outrageous sums of money coddling their pets.

If Chewy proves adept at targeting millennials in the near-future, the company will doubtlessly keep growing its revenue streams until it hits profitability. Investors who are thus turned off by the company's recent posting of net-losses should thus reconsider its long-term potential in light of the ongoing pet craze that's taken the U.S. by storm. As long as millennials are warming up to the idea of treating their pets as little children who deserve to be spoiled, companies like Chewy stand to reap huge profits from clever ecommerce operations that cater to this demand.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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