New avenues of growth could be on the horizon Soft ( CHWY -0.92% ) 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 30Motley Fool contributor Rachel Warren discusses the projects Chewy has in the works and analyzes why there is tremendous growth opportunity for her stock.
Rachel Warren: This is another title I really like, down about 20% year-to-date and about 44% in the last year I checked. This is a company that captured so much investor attention at the start of the pandemic. Everyone was home and had a lot more time to focus on their pets, buying treats for their pets. In fact, Chewy has faced such demand, they have had to work overtime to expand their already quite massive distribution network which is spread across the United States. You can get pretty much anything you want on Chewy, not just dog food. You can do dog or pet food, but you can do things like order prescriptions for your pets, toys, bedding, whatever. Rather than having to go to the vet, you can have these prescriptions delivered right to your door via auto-ship. I’m also very interested in the pet health care side of Chewy. Not only can you buy prescription drugs through its pharmacy business, as well as medications for 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 veterinarian via chat or video from anywhere instantly from 8:00 a.m. to 11:00 p.m. Eastern Time daily. Chewy customers actually get this telehealth service for free with auto-delivery. Otherwise, you pay $14.99 per chat or $19.99 per call. Chewy has also grown significantly in the pet healthcare field through its recent partnership with a well-known pet healthcare insurance company, Trupanion (TRUP -4.35% ). By partnering with Trupanion, Chewy is able to leverage Trupanion’s patented software to pay veterinarians directly. This also translates into a lot of savings for customers. It’s been a pretty good 2021 for Chewy. Net sales increased 24% year over year. The company’s gross margin increased by 120 basis points. The company also reported that net sales per active customer reached $430, which was a new high for the company and Chewy ended 2021 with 20.7 million active customers. This was also up almost 8% year over year. Chewy Pharmacy sales were up 75% year-over-year in the fourth quarter. This is an area that Chewy is, I think, looking to maintain and derive much of its future growth from. Additionally, management announced two new businesses that it plans to launch in 2023. The first is Chewy Royalty, which is the customer membership program, and the second will be Sponsored Ads. We talk about how companies like GoodRx (GDRX -2.63% ), they make most of their money from advertising revenue. Well, Chewy.com is going to be launching sponsored ads, which they believe will allow our vendors to advertise seamlessly to our 21 million active customers on our platform, so plenty of opportunity for growth for this business yet to come.
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