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Chowing Down On Chewy

Chewy IPO rises

Image source: mlorenz, Photo Melon, Pavel Hlystov, Dusan Petkovic - Shutterstock

What's going on?

Online pet products retailer Chewy made its stock market debut on Friday – and its shares rose by 60%. Woof woof.

What does this mean?

Chewy raised $1 billion by selling shares to new investors, valuing it at $9 billion. Founded in 2011, Chewy was gobbled up by retail chain PetSmart (itself owned by private equity investors) in 2017 for $3 billion. PetSmart’s own troubles abounded as customers took to ecommerce and abandoned its stores, leaving it cash-strapped. But Chewy continued to grow: it’s now second only to Amazon for online pet product sales in the US – and had 11 million customers fetching $3.5 billion of revenue last year.

In an atypical move for an ecommerce company, Chewy’s going to use a lot of the cash it raised to pay off some of PetSmart’s debt – as opposed to fueling its own growth. Altruistic perhaps, but Chewy may not have much choice(tweet this)

Why should I care?

For you personally: Seen but not heard.

The existing Chewy shares owned by PetSmart (and its owner) have significantly more influence than the new shares sold to investors on Friday. New investors – even with a sizable stake – won’t have as much sway over Chewy as they would at other companies. Perhaps Chewy and PetSmart are best left to their own devices – or maybe they’d benefit from more forceful outside counsel. Snap Inc.’s 2017 initial public offering (IPO) sold shares to investors with no voting rights at all – and it subsequently ran into a wall of strategic challenges.

For markets: Joining the club.

Chewy wasn’t the only one biting into stock markets last week: freelancer marketplace Fiverr and Silicon Valley cybersecurity firm CrowdStrike both went public to much investor applause – their stocks rose by 90% and 97%, respectively. And with a wave of cash likely to flow towards recent IPOs as some indexes rebalance and exchange-traded funds follow, investors may be trying to get ahead of future updates by buying up shares in advance.

Originally posted as part of the Finimize daily email.

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