Teaching your emotional support dog new tricks during COVID.

On Dec. 8, 2020, Chewy, the largest US online seller of pet food and supply, released its third-quarter earnings results:

• Revenue of $1.78b — up 45% from the year before.
• 17.7m active customers — up 39.8% from the year before.

Sit, Stay, Grow

PetSmart purchased Chewy in 2017 for $3.35b, in what was criticized as a bad deal for PetSmart. Investors feared Chewy would…

• Lose to Amazon, the e-commerce giant feared by retailers, in just about every retail category.
• End up like Pets.com, the e-commerce disaster that went bankrupt in 2000, losing investors over $300m.

3 years later, neither scenario played out and Chewy is now worth over $30b — nearly 10 times what PetSmart paid. In Oct. 2020, PetSmart sold their ownership in Chewy.

According to IBISWorld Data, in 2019, two players controlled nearly 90% of the online pet food and supply market: Chewy (50%) and Amazon (39%).

Beating Amazon isn’t an easy task but here’s how they did it:

• Prioritized customer service early on which led to high repeat orders — what other brand sends you flowers when your pet passes away?
• Differentiated with Auto Ship — Nearly 70% of Chewy’s revenue comes from customers subscribed to Chewy’s recurring subscription program.

Training Chewy to reach profitability

In 2019, Chewy was at risk of going bankrupt while struggling to reach profitability. The company’s quarterly growth had also slowed to 24% compared to over 40% in the previous quarters.

To increase profitability and growth, Chewy invested more into two higher-margin products:

• Chewy Pharmacy, an online prescription medication for pets — launched in July 2018.
• American Journey, Chewy’s own private label pet food brand.

The strategy seems to be paying off as Chewy’s losses have fallen in 2020. COVID had also exploded the growth of the pet business — increasing pet adoption by 50% in the first quarter of 2020.

To further expand its pet offering, on Oct. 28, Chewy launched a telehealth service that connects pet owners to vets virtually.

For investors… Teach a Chewy a new trick

Despite a 45% growth in sales, Chewy’s stock had fallen over 4% after its earnings report. Its stock had already increased over 150% in 2020 and investors are now worried about the future of e-commerce once a COVID vaccine is available.

If investors want to see continued growth in Chewy’s stock, they’ll have to teach Chewy a new trick — reaching profitability and maintaining a high growth rate without COVID.

Learn more: Ryan Cohen, founder of Chewy’s second act — fixing Gamestop