By Tomi Kilgore, MarketWatch
Shares of Chewy Inc. rocketed in their public debut Friday, as investors looked to buy into the rapidly growing online seller that says it is feeding on a “pet humanization” trend.
Chewy /zigman2/quotes/212690528/composite CHWY -4.82% announced late Thursday that it planned to sell at least 46.5 million shares at $22 apiece, which would bring in more than $1 billion at an initial valuation approaching $9 billion. Chewy had already increased its targeted IPO pricing range to $19 to $21, from an earlier range of $17 to $19, then priced higher than that range and added nearly 5 million more shares to the offering.
The extra shares come from corporate parent PetSmart Inc., which will take home the bulk of the proceeds by selling 40.9 million of the IPO shares. Underwriters — led by Morgan Stanley, JP Morgan and Allen & Co. — have access to an additional 6.98 million shares that could push the total higher, and those shares would also come from PetSmart.
The stock’s first trade Friday was at $36, or 64% above the IPO price, at 11:03 a.m. Eastern for 6.1 million shares, then rose to a gain of as much as 88% soon after before paring some gains. It was up 60% in afternoon trading to imply a market capitalization of about $13.8 billion, according to FactSet.
The company, which was launched in 2011, boasts that it is the largest “pure-play pet e-tailer” in the U.S., with a broad selection of more than 1,600 brands and the delivery of more than 100 million orders since inception. Chewy operates as an independent subsidiary of PetSmart, which acquired Chewy.com in May 2017.
Chewy’s mission is to be the “most trusted and convenient online destination for pet parents everywhere.” The plan since its launch has been to bring the best of the neighborhood pet store shopping experience to a larger audience, while maintaining a customer- and pet-centric culture.
“At Chewy, we love pets and pet parents. We view pets as family and are obsessed with serving pet parents by meeting all of their needs and exceeding expectations through every interaction,” according to the company’s mission statement.
There is a reason Chewy loves pet parents: The number of them keeps growing, and they tend to spend more, the longer they have their pets. And most of the money they spend is automatic, as part of the company’s Autoship subscription program.
The company has been led by Chief Executive Sumit Singh since March 2018. More than just a pet lover, Singh knows the e-commerce industry well. Before Chewy, Singh was director of Amazon.com Inc.’s consumables business (Fresh and Pantry) from 2015 to 2017, and was general manager of Amazon’s North American merchant fulfillment and third-party businesses from 2013 to 2015.
Chewy will be defined as a “controlled company,” with PetSmart retaining control of its corporate subsidiary. Chewy shares are expected to begin trading Friday on the New York Stock Exchange under the ticker symbol CHWY.
The company is looking to go public at a time that the exchange-traded Renaissance IPO /zigman2/quotes/207665280/composite IPO -1.92% has run up 34% year to date, outperforming the iShares Pet Care exchange-traded fund’s /zigman2/quotes/203240305/composite PAWZ -3.46% 15% rally and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.51% , which has also climbed 15.
Here are five other things to know about Chewy ahead of the IPO.
Chewy is bigger than you think, and growing very fast
Although the company lost money last year — it lost $267.9 million in fiscal 2018 after losing $338.1 million in 2017 — it also raked in a whopping $3.53 billion in revenue, up 68% from 2017.
To put that figure into perspective against other private companies that have recently floated shares publicly, Lyft Inc. /zigman2/quotes/208999293/composite LYFT -2.00% had revenue of $2.16 billion in 2018, Pinterest Inc. /zigman2/quotes/211319641/composite PINS +0.88% had revenue of $755.9 million and Beyond Meat Inc. /zigman2/quotes/211617595/composite BYND +3.38% had revenue of $87.9 million.
And 2018 was the first year revenue didn’t more than double, as it grew 13-fold in 2012, nearly tripled in 2013 and 2014, and increased 107% in 2015, 113% in 2016 and 133% in 2017.
Chewy Inc. S-1
In addition, Chewy had 9,833 full-time employees — or “Chewtopians,” as the company describes its staff — as of Feb. 3, 2019. Meanwhile, Pinterest, with a current market value of $16.8 billion, had just 1,797 employees as of Dec. 31, while Lyft, with a market cap of $17.0 billion, said it had 4,680 full-time employees as of Dec. 31. Beyond Meat, with a market cap of $3.4 billion, had just 383 full-time employees as of March 30.
Dual-class structure, so no S&P 500 inclusion
The common stock will have a dual-class structure. Class A shares will be offered to the public, and carry one vote, while Class B shareholders will be entitled to 10 votes.
The Class B common stock will be convertible at any time into one share of class A stock. After the IPO, majority owner PetSmart Inc. will own 278.4 million Class B shares, representing 70% of the total shares outstanding and 77% of the combined voting power.
The dual-class structure means Chewy can’t be included in the S&P 500, S&P MidCap 400 /zigman2/quotes/210599897/delayed MID -2.72% , the S&P SmallCap 600 /zigman2/quotes/210599868/delayed SML -3.55% or the Russell 2000 /zigman2/quotes/210598147/delayed RUT -3.11% indexes, since those indexes exclude companies with multiple classes of shares.