What happened
On a day when Wall Street is getting a relief rally as investors reassess a possibly less severe Omicron variant, pet insurance outfit Trupanion (TRUP 3.70%) is up a whopping 39% as of 2:10 p.m. ET. The general uptick in stocks is the sideshow today for this stock. The big news is that pet e-commerce leader Chewy (CHWY 4.28%) is making its foray into pet insurance, and has decided to partner with Trupanion to do so. Chewy stock was also up over 3% on the news.
Image source: Getty Images.
So what
Chewy will offer its some 20 million customers access to wellness and insurance plans for accidents, illnesses, and chronic conditions for dogs and cats. Plans will be available for purchase directly on Chewy.com starting in spring 2022, and Chewy will make use of Trupanion's software to pay veterinarians directly to reduce out-of-pocket expenses for pet parents.
With just over 1.1 million pets enrolled in a Trupanion insurance plan as of the end of September 2021, the Chewy partnership is a big deal for shareholders. The small insurance outfit will get access to millions of new pet-owning households in the U.S., which could help it sustain the tear it's been on since the start of the pandemic. Shares are now up nearly 320% since the beginning of 2020.
Now what
The pet industry is undergoing rapid growth right now. Animal companionship is on the rise, and pets are getting increasingly pampered by the same technology that their humans make use of. It's been a boon for Trupanion's business. Through the first nine months of 2021, revenue was up 40% year over year to $505 million.
Do bear in mind, though, that this is a premium-priced insurance stock. Trupanion now trades for nearly 10 times trailing-12-month sales and generated negative free cash flow of $6.2 million so far in 2021. However, the losses are largely by design, as the company is spending heavily to maximize its expansion right now, and it's clearly paying off. Landing a partnership with Chewy should help Trupanion continue to fetch best-in-breed revenue growth next year as it helps pet parents manage the wellbeing of their four-legged pack members.
