Chewy Stock Chomps on 14% Gain. Should Long-Term Investors Buy?

September 2, 2020

Uncover - Chewy stock

Online pet retailer Chewy Inc (NYSE: CHWY) saw its shares pop 13.7% yesterday after stay-home stocks soared on the back of Zoom’s impressive latest earnings. 

Investors are looking at other online-oriented stocks that are set to report (and perhaps surprise) on earnings in the coming weeks, with Chewy slated to reveal its latest quarterly numbers on 10 September.

Tim’s Take:

Pets. They’re not for everyone but for those that have them, Chewy has been an exceptional service. The original thesis that people stuck at home during the pandemic would either have more time for their pets, or even get a new pet, has played out. 

Chewy’s numbers back this up. In its most recent quarter, which it reported in early June, the company saw an impressive net sales figure of US$1.62 billion, reflecting robust 46.2% year-on-year growth.

What’s the difference between, say, Inc (NASDAQ: AMZN) and Chewy? Well, for pet lovers, Chewy caters to every niche imaginable.

By providing a laser focus on what the company calls “pet parents” (i.e. customers), Chewy has managed to grow a loyal following by offering up a wide range of products catered specifically to the pet market.

What’s more, its “Autoship” subscription service, where buying in bulk and offering flexible reordering gives customers that extra incentive to stick around, has been a huge hit.

In fact, revenue from Autoship topped US$1.1 billion in its latest quarter – representing 68% of overall revenue. As investors, we should love to see those reliable subscription revenue streams make up a bigger piece of the revenue pie.

Pets and suburbanisation

The whole “pet theme” also got me thinking about another trend – that of “suburbanisation” in the post-pandemic era. 

Will more people move out of cities? Probably, given a lot of us can now work anywhere. Will it be a mass exodus? I doubt it. Cities still offer the allure of idea generation, culture, great food and the best employment opportunities.

We’ll probably end up somewhere in between those two extremes. But even if we do, more people will definitely be living outside of cities and they are likely to be getting pets. 

Chewy’s unique offering will be there to take advantage of them. Even though it’s still not profitable, given time I think the company could become the default online retail option for pet owners in America.

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

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Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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