The year of the initial public offerings (IPO) continues. After a relatively quiet 2018, this year is starting off with a bang for companies looking to make their public debut. Social media platform Pinterest, ridesharing bigwig Lyft, and video conferencing specialist Zoom Video Communications have all made their public debuts, while others like business communication platform Slack and meat-substitute creator Beyond Meat are waiting in the wings.
Now e-commerce platform Chewy.com -- which specializes in pet food and supplies -- is ready to join the fray. The company has taken the preparatory step of releasing information about its business by filing an S-1 with the Securities and Exchange Commission (SEC). Here are five things potential investors should consider.
Image source: Chewy.com.
1. Things we know
Chewy is following an unusual path to get to its market debut. The online retailer of pet supplies is currently owned by privately held PetSmart, which acquired the company in 2017 for an estimated $3.3 billion in an effort to augment its brick-and-mortar sales. At the time, it was the largest-ever acquisition of an e-commerce business. As part of the IPO, PetSmart plans to remain the majority shareholder.
Looking to make it easy for investors, Chewy will simply drop the "e" from its name, adopting the stock ticker CHWY.
Chewy wants to take advantage of a trend among recent tech IPOs. The company plans to consolidate control of its shares by issuing two classes of common stock. Class A shares will carry 1 vote per share, while Class B shares -- those reserved for insiders -- will have 10 votes per share.
2. Things we don't know
The company has yet to divulge plans regarding which of the major stock exchanges Chewy will trade on or how much the company hopes to raise with its stock offering.
While the filing indicates Chewy is hoping to raise as much as $100 million from its public offering, that amount is typically a placeholder in the regulatory filing. The final amount the company raises will be dependent on investor interest in the company. Previous estimates indicated Chewy has a valuation in a range of $4.15 billion to $4.75 billion, though we don't yet know how many shares the company plans to float.
3. Revenue is skyrocketing
Chewy provided an unusually long financial history in its regulatory filing, with select data going back to 2014. The company generated revenue of about $204 million in 2014, and Chewy more than doubled that figure every year through 2017, when it produced revenue of $2.1 billion. In 2018, revenue of $3.53 billion grew 68% year over year.
This growth was driven higher not only by new shoppers but also by existing customers buying more products. Chewy's sales per active customer grew from $223 in 2012 to $334 in 2018. The company began its Autoship subscription sales -- allowing pet owners to receive repeat orders at regular intervals -- in 2014, with initial sales of $115 million. That grew to $2.3 billion in 2018. Subscription sales account for 65.7% of Chewy's total net sales in 2018, up from 61.5% in the prior year.
4. Profits are elusive
It isn't just the revenue that has been growing. Losses have increased almost every year since 2014, peaking at $337.8 million in 2017 but declining to $267.8 million last year.
There is good news, however. Chewy's loss from operations declined to 7.6% of net sales last year, an improvement from 16.1% of sales in 2017. That indicates that as revenue grows, if the company continues to practice spending discipline, it should eventually reach profitability.
5. A potentially lucrative opportunity
Revenue for the U.S. pet industry is expected to top $75 billion in 2019, according to the American Pet Products Association, a leading nonprofit industry group. Chewy noted in its regulatory filing that the pet supplies industry, like many others across the globe, is experiencing a rapid shift from in-store sales to online purchases.
Currently, e-commerce represents an estimated 14% of the pet food and supplies market (as of 2017), up from just 5% in 2015. That number is expected to grow to 25% of the market by 2022. Chewy believes it is perfectly positioned to capture additional sales as that trend continues.
There's more to come
It's important to note that while Chewy has revealed much in its bid to go public, there are still a number of things the company has yet to divulge. Expect additional updates to the company's regulatory filings in the weeks to come.
