Chewy is expanding its footprint into an industry which has historically held up well in economic downturns.
Pet products retailer Chewy Inc stated, it had priced its initial public offering at $22 per share, above its target, and had sold more stock than it had originally planned. Following the IPO, Chewy was valued at $8.77 billion.
Chewy’s IPO raised funds to help manage the debt load of its parent company – PetSmart and its success is a pointer to increased investor demand for the loss-making albeit fast-growing e-commerce company which is chasing the roughly $70 billion U.S. pet industry market.
Chewy’s sales have shot up from $26 million to $3.5 billion between 2012 and 2018. The company’s net loss in 2018 narrowed to $267.9 million, down from $338.1 million a year earlier.
Chewy sold some 46.5 million shares during its IPO, up from its expected 41.6 million since PetSmart sold more shares than it had originally planned.
At $22 per share, PetSmart will receive almost $900 million from the sale of its stock.
Chewy raised $123.2 million, which it said it will channel for increasing its working capital and other expenses.
Chewy had pitched its stock as a way for investors to buy into the trend of “pet humanization” since pet owners are increasingly treating pets as a part of their families; the pet industry has historically held up well in economic downturns.
In 2014, private equity firm BC Partners Inc had purchased PetSmart for $8.7 billion, since it sought to capitalize on consumers lavishing their pets with expensive treats and gear. However, the company faced strong headwinds since consumers preffered to shop online than to hed to its brick-and-mortar stores.
In 2017, PetSmart acquired Chewy for $3.35 billion. Chewy’s IPO values it at almost three times the price PetSmart paid for the company.
Chewy competes with Amazon.com Inc and Blue Buffalo Pet Products, which was acquired by General Mills Inc in 2018.
According to Ryan Cohen, Chewy’s co-founder, there is plenty of growth left in the company.
“There’s still lots of penetration and growth to be had just within the U.S. market, there’s continuing to expand internationally,” said Cohen, who stepped down as the company’s CEO in 2018.
Following the IPO, PetSmart and BC Partners will retain control of Chewy through their class B shares, which carry considerably more voting power than the class A shares investors in the IPO are buying.
Morgan Stanley, JPMorgan, Allen & Co and Bank of America Merrill Lynch are leading the 12-member underwriting team.