Soft (CHWY -1.64%) had a checkered journey in his relatively short life. It was founded in 2011 as an online retailer of pet food and other pet-related products. It was later acquired by PetSmart in 2017, launched an online pet pharmacy the following year, and was spun off in an IPO in 2019.
Chewy has impressed investors since his public debut. Between 2019 and 2022, its revenue grew at a compound annual rate (CAGR) of 28% and its gross margin fell from 23.6% to 28%. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) turned positive in 2020, and it became profitable under generally accepted accounting principles (GAAP) in 2022.
Chewy was well insulated from the pandemic and inflation, as consumers will continue to purchase food, medicine and other essentials for their pets during economic downturns. The advantage of its precursor also prevented Amazon (NASDAQ: AMZN) of gaining traction with its own private label pet products over the past five years, and its scale has kept it from repeating the same mistakes Pets.com made during the dot-com meltdown.
Chewy’s stock has fallen about 70% since hitting an all-time high during the growth-stock buying spree in early 2021. But at $34, it’s still trading higher 50% above its IPO price of $22 – and it looks cheap at just 1.3 times this year’s sales. I believe Chewy is still a solid long-term investment, but today I’m going to focus on three deeper aspects of Chewy’s business that smart investors should know about by now.
1. Its expansion into pet insurance
Last year, Chewy rolled out CarePlus, a suite of pet health and wellness plans, across the United States. Its wellness plans start at $20 per month and cover annual exams, vaccinations, parasiticides and other preventative care treatments. Its insurance, provided by its partners Trupanion (NASDAQ: TRUP) And Lemonade (NYSE: LMND)available in tiers of $20, $60, and $100 per month.
Chewy expects CarePlus to complement its online pharmacy and drive its long-term growth. During his third-quarter conference call last December, CEO Sumit Singh said the company remained “optimistic about the pet insurance space and our ability to drive customer acquisition and deepen the market.” ‘customer engagement’. Singh also said the company is “satisfied” with its “very early” progress in pet insurance so far.
According to Beyond Market, the global pet insurance market could still grow at a CAGR of 16.3% between 2023 and 2030. Therefore, investors should keep a close eye on this small but growing component of its Chewy ecosystem. Health” over the next few years. .
2. Its own brands
Last year, Chewy launched its first private label, Vibeful, for multivitamins, hip and joint supplements and other wellness products. In the long term, Chewy plans to expand its private label portfolio to attract more customers, expand its moat and increase gross margins. At the end of 2022, Singh said Chewy’s private labels only accounted for a “mid to high single digit” percentage of its total sales – but he expects that percentage to eventually reach 15% at 30. % as it launches more products.
3. Its international expansion
Chewy still generates all of its revenue in the United States, but it plans to expand into its first international market “over the next few quarters.” Singh didn’t name the actual region during the company’s latest conference call, but said it would target markets with “geographic proximity and consumer behavior similarities” to the US market.
Chewy expects this expansion to temporarily squeeze its adjusted EBITDA margins in the near term, but it does not expect it to impact sales growth or gross margins. If successful, this expansion may just unlock Chewy’s next phase of growth, as many countries still lack a combined online marketplace and pet healthcare platform.
Chewy still has plenty of room to grow
Chewy shares overheated at the start of 2021, but they are much cheaper now and the company still has a bright future. Expanding its pet insurance, private label and overseas businesses could push its stock higher over the next few years and offer greater long-term returns than Amazon or other leaders. e-commerce establishments.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Leo Sun holds positions at Amazon.com. The Motley Fool holds positions and recommends Amazon.com, Chewy, Lemonade and Trupanion. The Motley Fool has a disclosure policy.