Net sales in 2023 will exceed $11 billion, chewy (Chuwai 1.66%) is an e-commerce giant serving the pet industry. The company has attracted more than 20 million active customers due to its fast shipping, focus on customer service, and sales of a wide range of products and services.
Chewy isn't a subscription service per se, but it does offer an automated way to place recurring orders. This option is very popular. In the fourth quarter of fiscal 2023, more than three-quarters of our net sales were from car carrier orders.
Chewy was built as an e-commerce platform. However, management is pushing to build several physical locations in Florida next year. It's not uncommon for e-commerce companies to do this. for example, Amazon The company currently owns a brick-and-mortar convenience store and a grocery store. And in 2016, Etsy We experimented with a store-within-a-store concept. Macy's.
But what's surprising about Chewy's move into brick-and-mortar stores is that it has little to do with the company's retail operations.
Chewy's surprising new business idea
Chewy executives said in a fourth-quarter letter to shareholders that the company plans to open four to eight veterinary clinics near its headquarters in Plantation, Florida, within the next year. These clinics are called Chewy Vet Care.
“Our thoughtfully designed clinic will be unlike any other on the market,” CEO Sumit Singh said on the company's fourth quarter earnings call.
According to various research reports, the pet clinic space is a growing market. According to a report by ResearchAndMarkets, the global market size is estimated at $114 billion, and is predicted to grow at an average annual rate of nearly 7% until 2028. Chewy, on the other hand, is targeting only the domestic portion of that market, which it believes to be around $114 billion. A $47 billion opportunity.
This is a growing opportunity for multiple reasons. First, pet owners increasingly consider their pets to be part of the family. As a result, they are looking to spend more on their pet's medical care. Additionally, pet insurance is becoming more popular and pet health is becoming a higher priority.
Therefore, it seems wise for Chewy to position itself to capture a piece of this growing pie. However, I think the company's expansion into veterinary hospitals is important for other reasons as well.
Is this the endgame for Chewie?
In December, Chewy quietly announced a new software product for veterinary hospitals. With one, a veterinarian can access Chewy's prescription drug catalog and sell to customers without having to stock it. This also allows the veteran to earn the remaining fees.
The company's other product, cloud-based platform Rhapsody, covers the administrative side of veterinary clinic operations. Veterinarians and their staff can help you manage your pet's health records, access Chewy.com's catalog, find relevant health education content, and handle day-to-day clinic needs such as scheduling and payment processing.
Mita Malhotra, president of Chewy's health division, said the company's move into software opens up an $11.5 billion new market. But Malhotra also said Chewy will also use Rhapsody to manage its own clinics.
In other words, Chewy appears to be expanding its market opportunities by building complementary businesses. The company already has a thriving e-commerce platform. However, the company intends to support the growth of e-commerce by opening its own clinics and providing software solutions to third-party clinics.
Not only does this help Chewy's e-commerce platform grow, but the software and clinics are also expanding business opportunities in their own right.
What it means for investors
As of this writing, Chewy stock is trading at a downright cheap 0.6, its lowest P/S ratio in history.
CHWY PS ratio data by YCharts.
This low valuation reflects market doubts about Chewy's ability to grow. On the one hand, this is fair. All told, the company ended fiscal 2023 with 20.1 million active customers, down 3% from 20.7 million at the end of fiscal 2021. Chewy has work to do in terms of getting its customer base back on a growth track.
On the other hand, as we expand into a variety of pet medical services, our addressable market is expanding. From this, we expect to find ways to increase sales for years to come.
For this reason, I think Chewy stock is a great opportunistic buy for long-term investors. The company already dominates pet e-commerce, but it could soon become a force to be reckoned with in other areas of the pet industry.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Jon Quast has a position on his Etsy. The Motley Fool has positions in and recommends Amazon, Chewy, and Etsy. The Motley Fool has a disclosure policy.
