Chewy’s IPO – high demand for eCommerce stocks
The online pet retailer recently raised $1 billion in one of the biggest-ever eCommerce IPOs.
Since June 14, Chewy.com is trading on the New York Stock Exchange under the ticker symbol CHWY. Through its initial public offering (IPO), the American online pet supply retailer raised $1.02 billion making it one of only 10 IPOs for online product retailers globally to exceed $1 billion, according to data compiled by Bloomberg. While Chewy priced its listing at $22 per share, the first trade was at $36. Soon after, the stock topped $41, 86 percent above its offering price. In the first weeks following its strong debut, Chewy’s stock has generally fallen, only to climb again in week two, trading at $32.50 six weeks after the stock market debut. It remains to be seen how Chewy might benefit from its stock market launch to take on Amazon in the online pet-food space.
The current market cap of roughly $13 billion six week after the IPO is way beyond the $3.35 billion American pet store chain PetSmart paid to acquire the eRetailer only two years ago, highlighting Chewy’s extraordinary performance in past years. Since its founding in 2011, Chewy has earned itself the reputation of being incredibly predatory and willing to lose money to grow market penetration. The company’s strategy revolves around the pet humanization trend, addressing the premium market segment of passionate pet owners, who Chewy refers to as ‘pet parents’, and providing them with fast delivery times and excellent customer service. One key success factor is the online store’s Autoship feature which lets users create automatic recurring orders. Autoship sales made up two thirds of Chewy’s net sales in 2018. The company’s customer-centered strategy allowed for an impressive revenue growth. It is projected that eCommerce net sales will continue to grow as high as 33 percent year-over-year, surpassing $4.6 billion by the end of 2019.
Chewy’s recent IPO can be seen as a paramount example of finding broad market potential in a specific customer segment. As market leader in the European online pet care industry, Zooplus will closely observe the rising star in the US. Following Chewy’s IPO, Zooplus stock increased by more than six percent.
Looking at the online retail industry as a whole, Chewy stands out as the most prominent example in a series of recent IPOs. Earlier in June, the Millennial and Gen Z-focused fashion retailer Revolve successfully raised $212 million and has since then more than doubled its market cap to nearly $2.4 billion as of end of July. Revolve devotes much effort for targeting its customer segment, maintaining a network of 3,500 influencers.
However, without a compelling business model, online retailers might find it difficult to attract investors. Lately, the Global Fashion Group experienced a rather bumpy IPO. After reducing the offering price and postponing the subscription period, the fashion retailer with a focus on emerging markets needed strong financial backing from its major stakeholders Kinnevik and Rocket Internet for the placement on the stock exchange on June 28.
The day before, American secondhand luxury retailer The RealReal made its public debut. The company raised $300 million and saw its stock jump almost 50 percent in early trading on June 28, trading now at $25.85 as of 26th of July. The RealReal’s CEO Julie Wainwright is no stranger in the eCommerce industry. Ironically, her previous IPO was the infamous pets.com that should become a prime example of the devastating dot-com crash in 2000. Almost 20 years later, investors seem to be more interested than ever in selling goods online, especially pet food.