Our four-legged family members are getting the most out of our quarantine lockdown lifestyles these days. Multiple daily walks, endless ear scratching, and videoconference cameos are de rigueur. Their humans can experience a dog's life by buying in on the largest online pet store on the web, Chewy, Inc. (NYSE:CHWY).  We're doing a lot more online shopping today and food for Fido is no exception. Here's why investors who look into Chewy are barking up the right tree. 

Cute black lab puppy sitting on a pile of money

Getty Images


Launched in 2011 to "bring the best of the neighborhood pet store shopping experience to a larger audience, enhanced by the depth and wide selection of products and around-the-clock convenience that only e-commerce can offer," Chewy, co-headquartered in Dania Beach, Florida and Boston, hit the ground running. It was acquired by PetSmart in May 2017 for $3.35 billion — at the time the largest ever acquisition of an e-commerce business. (Chewy is publicly traded; PetSmart is not). 

In 2018 Sumit Singh, former Amazon (NASDAQ:AMZN) North American Merchant Fulfillment Director, was named CEO, and the company went public in June 2019. Singh brought valuable experience to the company that aspired to be the Amazon of pets. 

Chewy is carving out a nice chunk of the almost $100 billion U.S. pet supply industry, with 12.7 million active customers, 100 million orders shipped since 2011, and net sales of $4.85 billion for fiscal 2019.

It's running off the leash right now, with $1.35 billion in net sales for Q4 2019 alone, according to its April 2 letter to shareholders. That's a 34.7% year-over-year increase, and for fiscal 2019 as a whole, its net sales were up 40.5% from fiscal 2018, to $4.85 billion, as I mentioned earlier.

Chewy's customer base grew 27.2% from 2018 to 2019, reaching 13.5 million active customers in Q4 2019, and the average customer spent $360 on the site in that quarter. 

The company's Q1 2020 earnings call is scheduled for Tuesday, June 9. 

Let's go walkies

Chewy's stock closed at $25.46 on March 11th, 2020 — the day the World Health Organization declared the COVID-19 outbreak a pandemic, and the benchmark date for coronavirus commerce. Since then, shares have risen more than 60%. 

The COVID-19 pandemic has actually had a positive effect on the national pet population. According to 24PetWatch, provider of pet insurance policies and tracking microchips to more than 1,500 U.S. animal shelters and rescue agencies, between March 13 and May 22, 46% fewer dogs and 49% fewer cats entered animal shelters compared to the same time period in 2019. Though the number of fostered cats decreased slightly, the group's ShelterWatch report recorded a 32% increase in dogs entering foster homes. ShelterWatch showed an overall decline in adoptions nationwide, but The Humane Society of the United States reports that some areas like New York City, Dallas, Charlotte, and Los Angeles have seen as much as a 90% increase in adoptions. 

Good doggie!

So what does pet adoption have to do with the price of Chewy stock? It's a simple multipart cause-and-effect scenario. First came the coronavirus, then the pandemic, then the nationwide shelter-in-place and quarantine lockdowns. Cabin fever stirred people yearnings for cuddly new friends -- and puppies need supplies.

Chewy provides everything pet owners need in a couple of clicks, and delivers it directly to the home. The company has chomped down on that opportunity, offering subscriptions where customers can get pet food supplies automatically replenished. It calls this service "Autoship," and those customer sales totaled $3.3 billion in 2019, nearly 45% higher than in 2018.  

Most pet owners don't consider spending on pet products discretionary; their four-legged friends are as much a part of the family as their two-legged counterparts. The multibillion-dollar pet supply industry is simply not going to roll over. It's here to stay, and online retailers like Chewy.com have the infrastructure to meet an increasing demand for products and services. 

Hexa Research, an international market research and consulting organization, says the U.S. online pet food and supplies market — in which Chewy is a major player — is expected to reach $6.13 billion by 2025. In 2017, it was a $3.91 billion industry. See where this is going?

The National Pet Owners Survey, conducted by the American Pet Products Association, showed that 68% of households in America had at least one pet. 

Chewy has created a lot of buzz since its 2019 IPO, becoming a, well, pet stock of many investors. I'm certainly planning to add it to my kennel. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.