The Pet-Centric Stock Poised for Strong Growth

New avenues of growth could be on the horizon for Chewy (CHWY -3.27%) due to its plans for a customer membership program and the implementation of sponsored ads. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 30, Motley Fool contributor Rachel Warren discusses the projects that Chewy has in the works and analyzes why there is considerable growth opportunity ahead for its stock.

Rachel Warren: This is another stock I really like, down about 20% year-to-date and about 44% over the past year last I checked. This is a company that got so much attention from investors earlier in the pandemic. Everyone was at home and had a lot more time to focus on their pets, buy goodies for their pets. In fact, Chewy faced such demand, they had to work overtime to expand their already quite massive fulfillment network which is spread across the US. You can get virtually anything you want on Chewy, not just dog food. You can do dog food or pet food, but you can do things like order prescriptions for your pets, toys, bedding, whatever the case may be. Rather than having to go to the vet, you can get those prescriptions delivered straight to your door through auto-ship. Chewy's pet healthcare side to its business is really interesting to me as well. Not only can you purchase prescription compounded medications through its pharmacy side of its business, as well as medications across nearly 90 different health conditions, but Chewy has also launched a pet telehealth service called Connect With a Vet. Pet owners can connect with a vet via chat or video from anywhere instantly from 8:00 a.m. to 11:00 p.m. Eastern every single day. Customers of Chewy actually get that telehealth service free with auto-ship. Otherwise, you pay $14.99 per chat or $19.99 per call. Chewy has also been very much expanding into the area of pet healthcare with its recent partnership with well-known pet healthcare insurance carrier, Trupanion (TRUP 5.10%). By partnering with Trupanion, Chewy's able to leverage Trupanion's patented software to pay vets directly. That results in a lot of savings for customers as well. It was a pretty good year in 2021 for Chewy. Net sales were up 24% year-over-year. The company's gross margin expanded 120 basis points. The company also reported that net sales per active customer hit $430, which was a new company high and Chewy ended 2021 with 20.7 million active customers. That was up nearly 8% year-over-year as well. Chewy pharmacy sales increased 75% year-over-year in the fourth quarter. That's an area that Chewy's looking to, I think, maintain and draw a lot of future growth from. As well, management announced two new businesses that they are planning to launch in 2023. The first is Chewy Royalty, which is the customer membership program, and the second is going to be sponsored ads. We talk about how companies like GoodRx (GDRX -0.14%), they make most of their money through ad-based revenue. Well, Chewy.com is going to be launching sponsored ads, which they said will enable our suppliers to seamlessly advertise to our 21 million active customers across our platform, so a lot of growth opportunity for this company yet ahead.