Despite a huge customer base, Chewy has innovated methods to keep them engaged and also continue expansion. This article shines light on how the company stayed highly successful even during the pandemic.
FREMONT, CA: Chewy is praiseworthy for attracting and retaining customers. The recently announced results show that in the third quarter alone, the company added 1.2 million net new customers. Now, it has 17.8 million active users, a year-on-year increase of nearly 40%. So far, it has gained 5.1 million new customers, highlighting the value of e-commerce during the COVID-19 pandemic. The benefit to chewy shareholders is that e-commerce is often a habit rather than a temporary change in behavior.
But for e-commerce, why would anyone choose Chewy over Amazon, especially when people are already using Amazon for other purchases? It may be related to the personal customer service provided by Chewy. The company is known for using pets' names when communicating with customers, and even sends surprise personalized gifts from time to time. This strategy makes Chewy truly care about your pet. Since pet owners love their furry friends, they will attract others who at least like them.
Speaking of Chewy's customer base, 69% of its sales comes from Autoship customers. Pet owners know more or less what their pet needs are and how long the supply will last, so it makes sense to set up automatic delivery. Chewy will incentivize customers to join Autoship because of the benefits: the company can more accurately predict upcoming inventory requirements. This is not true recurring income; customers can cancel at any time. But this makes the business easier to run.
Chewy customers will be encouraged to participate in automatic shipping due to a 5% discount. Chewy is studying more ways to push customers to achieve automatic delivery. For example, it has just launched a telehealth service for pets called "Contact with the Veterinarian." The service will be free, but only available to Autoship customers, which provides a further incentive for retained customers to sign up for automatic shipping.
There are many ways to measure stock valuations. The P/S ratio is only 1, and should not be used in isolation, but it is very helpful for our purposes here. To calculate it, divide the market value of the stock (the total value of all shares) by the company's income for the past 12 months. Higher income growth usually requires a higher P/S ratio, and vice versa.
As you can see, both of these statements can be argued when evaluating the valuation of chewy stocks. Most stocks use this approach because the valuation indicator can measure the point in time: now. But to truly know whether Chewy’s stock is overvalued, investors must foresee how the business will develop. This skill needs to be developed to develop, but it is very worthwhile for long-term investors.