Chewy Inc: The Perfect Recession- and Pandemic-Proof E-Commerce Company?

Chewy Stock up 244% YoY, but Wall Street Still Bullish

If there’s any tech stock that tugs at your heart and wallet, it’s Chewy Inc (NYSE:CHWY). Its web site is a lot more personal and fun to visit than Amazon.com, Inc. (NASDAQ:AMZN). Which may be why it resonates with American pet owners so much.

A provider of pet food, treats, supplies, and medications, Chewy has seen its stock rise 244% year-over-year and 245% in 2020.

But what about the stock market crash in March?

Whereas most stocks took months to erase all their losses associated with the coronavirus-fueled sell-off, CHWY stock was back to its winning ways just a couple of weeks after the markets bottomed. And Chewy stock has continued to rocket considerably higher.

And for good reason. Families love their pets and will do virtually anything to make sure their pets are happy, healthy, and well fed. And that costs a lot of money.

Eighty-five million Americans, or 68% of all U.S. households, own a pet. And the average pet owner spends more than $1,500 on their pets annually. (Source: “Pets are like children to many Americans — here’s how much pet owners spend on average each month,” Business Insider, May 13, 2018.)

Even fish, which are the cheapest pets, can put a dent in one’s wallet: each month, fish owners spend $62.53 per month keeping the fins of their aquatic friends wagging.

Sure, people can buy pet supplies from a faceless juggernaut like Amazon, but it looks like pet owners would prefer to buy their products from a company of pet lovers like Chewy Inc.

It’s not just shoppers who agree. Wall Street is pretty excited about Chewy too. Of the 16 analysts following CHWY stock, all of them have “buy” ratings.

Chewy stock has had great momentum throughout 2020, but it has especially been on fire in December. Over the first three weeks of the month, CHWY stock soared 30% and, as of this writing, its 52-week high is $109.73.

It’s pretty difficult to see Chewy stock continue on this vertical trajectory. But while the company will no doubt give up short-term ground to well-deserved profit taking, its long-term outlook remains excellent.

Chart courtesy of StockCharts.com

CHWY Stock Overview

Chewy sells everything that people need for their pets, including food, treats, toys, medications, and health-care products. It offers approximately 60,000 products from over 2,000 partner brands. (Source: “About,” Chewy Inc, last accessed December 23, 2020.)

In Chewy’s third quarter, 5.1 million people joined the company’s active customer base, bringing its total to 17.8 million. (Source: “Letter To Shareholders,” Chewy Inc, December 8, 2020.)

Headquartered in Dania Beach, FL, the company has 15 fulfillment centers across the U.S., covering 6.1 million square feet. That’s roughly the equivalent of 106 football fields. Unlike other e-commerce retailers like Amazon, Chewy’s customer service team is available 24/7 to answer any questions about their products.

To that end, Chewy recently launched a new telehealth service, “Connect with a Vet,” which connects pet owners with a contracted, licensed veterinarian who answers questions, offers advice, and discusses pet health concerns.

They don’t diagnose medical conditions or recommend treatments, but they will make referrals to local vets or emergency clinics, if needed. Chewy offers this service for free to “Autoship” customers.

Strong Third-Quarter Results

On December 8, Chewy Inc announced its financial results for the third quarter ended November 1. In the quarter, the company’s revenue increased approximately 45% year-over-year to $1.8 billion. (Source: Ibid.)

The key revenue drivers in the quarter were a 39.8% increase in active customers and a 2.8% increase in net sales per active customer. Autoship customer sales were up 42.5% year-over-year at $1.2 billion.

Chewy reported a third-quarter net loss of $32.8 million ($0.08 per share), compared to a third-quarter net loss of $79.0 million ($0.20 per share) in the previous year. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $5.5 million, an increase of $35.7 million compared to the previous year’s third quarter.

Free cash flow was $32.9 million, compared to negative-$12.8 million in the third quarter of the previous year. The company ended the third quarter with $505.8 million in cash on hand.

Analyst Take

Chewy Inc is an excellent e-commerce stock that should continue to experience solid growth after the tailwinds of COVID-19 taper off. Even with a coronavirus vaccine, no one is going to want to go back to lugging around a 20-pound box of kitty litter, or trudge to a brick-and-mortar store only to discover that their dog’s favorite treat is out of stock.

Chewy delivers a huge variety of pet merchandise to its customers’ doors. This might explain why the company reported record third-quarter sales and another quarter of positive adjusted EBITDA.