Online pet supplies Chewy stormed the New York Exchange last Friday, and the share of this Petsmart-owned business quickly soared as much as 86% above its offering price on its public debut.
The retailer’s stock last Friday opened at $36, which gave the company a $14.3 billion in market capitalization. The business finished at $34.99 per share on its first trading day, ending 59% more than its IPO price.
The night before, Chewy was at 46 million shares at $22 each, which is over the indicative range it had given at $19 to $21. The total amount of stock laid out in the deal was 5 million above what was anticipated and collected $1 billion.
Established in 2011 by Michael Day and Ryan Cohen, Chewy dubs itself as the “largest pure-play pet e-tailer in the United States.” The business separated itself from most of its rivals by having 24/7 customer service access and two-day shipping for online purchases.
Kathleen Smith, a Renaissance Capital principal that focuses on IPO-focused exchange-traded funds, noted that the business’ 60% growth rate, $3.5 billion in sales and its vast and loyal customer base, helped it entice investors during its IPO.
“Today, in the United States, we’re only about 14% penetrated from an online point of view,” Sumit Singh, Chewy CEO, said on CNBC’s “Squawk on the Street” before the company opened its doors for trading. “Chewy, if you look at it — it’s a $70 billion industry — we’re penetrated in about roughly 10% of the households.”
Despite this, not all cards are going to the company’s way. Shipping’s higher costs have crippled its margin. Between fiscal 2017 until 2018, Chewy registered a $268 million net loss, but lower from the $338 million it reported in the past.
Meanwhile, based on Chewy’s S-1 document with the Securities and Exchange Commission, sales have increased quickly, starting in fiscal 2012 where it only had $26 million to fiscal 2018 at $3.5 billion.
Parent Petsmart will now only own around 70% of Chewy’s general stock and acquires 77% of the voting power. Petsmart acquired chewy’s for $3 billion in 2017, supported BC Partners, a private equity institution.
Analysts from Moody said in a report last February that Petsmart’s acquisition of Chewy has been strategic as it provided the latter added online scale and expertise. Plus, it also blends with the former’s brick and mortar style while rapidly increasing Petsmart’s ability to penetrate online.
However, analysts cited that the since Chewys acquisition has been financed mainly via additional debt and as the same trend goes with the majority of “high growth pure-play online retailers,” they anticipate that Chewy will be EBITDA negative for the next 12-24 months at a minimum.
Since the acquisition, Chewy has grown its private label enterprise and introduced an online pet drugstore, the “Chewy Pharmacy.”
Chewy will continue to seek for continuous growth by widening its product selection, enticing new customers, and venturing into new services.
Chewy is now trading on the NYSE under the ticker CHWY.