Animal Sector

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Chewy - >>> 2 Growth Stocks That Tripled in 2020 and Are Still Worth Buying

Secular end-market growth should help these high-flying stocks sustain their momentum.


Motley Fool

by Harsh Chauhan

Dec 23, 2020


https://www.fool.com/investing/2020/12/23/2-growth-stocks-that-tripled-2020-still-worth-buy/


Chewy (NYSE:CHWY) and Twilio (NYSE:TWLO) have set the stock market on fire in 2020, as shares of both companies more than tripled this year thanks to the coronavirus pandemic, which gave their businesses a nice shot in the arm.

While Chewy benefited from a rise in online purchases of pet supplies during the pandemic, Twilio's tailwind came in the form of an acceleration in the adoption of cloud-enabled contact centers.

Let's take a closer look at how the year unfolded for these two high-flyers, and why they look like solid bets for 2021.

1. Chewy has stepped on the gas and it can sustain its growth
Chewy started the year on the front foot with solid first-quarter guidance, driven by favorable shopping behavior that led to an increase in purchase size and a sharp increase in customers. In fact, Chewy has seen tremendous growth in its active customer count during the first nine months of the year.


Metric

Q1 2020

Q2 2020

Q3 2020

Active customers (millions)

15

16.6

17.8

Year-over-year growth

32.6%

37.9%

39.8%

Net sales per active customer

$357

$356

$363


A combination of higher customer count and an increase in net sales per active customer has helped Chewy clock impressive revenue and margin growth in 2020, as the chart below shows.

Chewy is on track to end the year on a high, as the company's guidance for this quarter indicates. It projects year-over-year revenue growth between 43% and 45% this quarter, while full-year sales are expected to land between $7.04 billion to $7.06 billion -- an increase of 45% to 46% over the prior year. That would be better than the 40% revenue growth Chewy achieved in 2019.

Chewy believes that it can keep up this momentum in the new year -- its customer retention rate has spiked 600 basis points so far in 2020. The company doesn't expect to incur additional spending on customer retention in 2021 because the new customers it has acquired this year are likely to continue purchasing in a post-pandemic scenario, as the increase in the average order value suggests.

Chewy's expectation isn't out of place. Online sales of pet products were growing at a much faster pace than physical sales even before the pandemic. For instance, the online pet retail market in the U.S. jumped a whopping 275% in 2018 compared to just 14.4% growth in the physical retail channel, according to third-party estimates.

The good news for Chewy investors is that this market still has a lot of room for growth. The e-commerce channel reportedly accounted for just 13% of pet products sales last year. The share of the online channel is expected to grow to 27% in 2020 and 34% next year, according to asset management firm Needham & Company's estimates.

Chewy has become a major player in this space in 2020. Management pointed out on the second-quarter earnings conference call earlier this year that online sales of pet products are on track to increase $3.9 billion in 2020, as per pet industry data provider Packaged Facts.

Chewy's full-year 2020 guidance suggests that it could add $2.2 billion in revenue this year, cornering a lion's share of the incremental revenue of the overall market and putting itself in a nice position to tap into the long-term opportunity. Throw in the fact that Chewy has been diversifying into new, multibillion-dollar verticals, and this should give investors more reasons to be bullish about this growth stock in the long run. <<<


>>> Chewy, Inc. (CHWY), together with its subsidiaries, engages in the pure-play e-commerce business in the United States. The company provides pet food and treats, pet supplies and pet medications, and other pet-health products, as well as pet services for dogs, cats, fish, birds, small pets, horses, and reptiles through its chewy.com retail Website, as well as its mobile applications. It offers approximately 60,000 products from 2,000 partner brands. The company was founded in 2010 and is headquartered in Dania Beach, Florida. Chewy, Inc. is a subsidiary of PetSmart, Inc.

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