Chewy recently went public and since their IPO their stock has had a turbulent ride, but here’s why I’m investing in them now... but first, a little overview of what Chewy is.
Chewy Inc. is an online service that provides food, toys, treats, and medication for your pets. They are essentially the Amazon for pets. They offer a subscription service to have your pets needs delivered when it’s needed without you having to worry about it.
The bull case for Chewy:
They have nailed customer service. Chewy does not lose customers. They are so laser focused on keeping their customers happy, that they have an outrageous claim that they will answer the phone within 6 seconds of you calling them. They also go the extra mile by really knowing your pet and your family, and add special touches like handwritten notes, paintings of your pet, and even ice cream when your pet passes away.
It’s a bold claim, but many millennials would rather have a pet than a kid today because of the responsibility both financially and socially. Pet adoptions had a spike during quarantine, and many of those adoptees went over to Chewy.
Chewy’s customer retention rate was the same last year as it was during COVID, meaning customers weren’t just coming there because they couldn’t go to the store—they came and they are staying
Chewy’s most apparent retail competitor, Petsmart, is actually a majority stakeholder in Chewy, so they don’t really compete.
Amazon is Chewy's largest online competitor, and with COVID and Amazon's increased fulfillment time, it allowed an opportunity for other companies to push their online shopping experiences, and several consumers realized that it's not hard to manage several different online shopping accounts.
The bear case for Chewy
Amazon is the biggest player in the space and if they wanted to they could attempt to take market share away from Chewy.
The spike in pet adoptions is unlikely to last and in turn Chewy will lose several customers
Pets have a shorter life span, so customers only stay for the lifetime of their pets.
Chewy may not be able to sustain the margins they have with increased competition from Amazon
CHWY is trading near its all time highs, and after earnings they pulled back a little bit. However, I think any price between $40 and $50 is a good place to continue to buy the stock. Once it breaks through its all time high of $52.45 and sustains that price it has a new area to trade in. I think Chewy has potential to grow to the household name for caring for your pets. I wouldn't be surprised if in the next two years, there are several competitors that come into the market trying to grab onto the coattails of Chewy's success. This is a growth stock, and they have a lot of room to grow. This won't be my largest position, but it's definitely going to have a sizable stake in my portfolio.