Chewy's Solid IPO Puts The Spotlight On These ETFs

Online pet products retailer Chewy CHWY made a sizzling debut on the New York Stock Exchange on Jun 14. Its shares skyrocketed as much as 85% on the first day and closed at up 59%. The pet e-tailer raised $129.8 million through the IPO offering of 5.6 million shares at $22 each - higher than the revised expected range of $19-$21 from $17-$19.

The astounding surge pushed Chewy’s market capitalization to $14.8 billion from nearly $9 billion at IPO price (read: U.S. IPO Market Buzzing Hot: ETFs to Tap the Boom).

Chewy: A Good Bet?

Chewy, a subsidiary of PetSmart, is an online retailer of pet food and other pet-related products. It is betting on the "pet humanization" trend where owners splurge on their pets whom they consider part of the family. The company describes itself as the "largest pure-play pet e-tailer in the United States."

It generated $3.5 billion in total revenues last year, up 67% from 2017. About 42% of revenues come from sales of pet food. Another 22% comes from supplies and medicine and 25% from vet care. The rest comes from pet services and live animal sales. The company, which is yet to make a profit, had reported net loss of $268 million in 2018. However, losses narrowed from $338.1 million reported in 2017.

Under CEO Sumit Singh’s leadership over the past two years, the company has captured more than 50% of the online pet care market, which totals $6 billion, according to the American Pet Products Association (APPA). The U.S. pet industry is projected to top $75 billion this year. This online pet retailer has positioned itself well to tap into the growing market and the increasing shift toward online sales. Notably, Singh expects online share to hit 25% by 2022 (read: An ETF to Capitalize on the Booming Pet Industry).

More than two-thirds of U.S. households, or about 85 million families, have a pet, according to APPA. Per Packaged Facts data cited by Chewy, spending on pet products and services expanded at 5.4% compounded annual growth rate in the five years through 2017 and is projected to witness 4.2% CAGR from 2017 to 2022.

ETFs in Focus

The successful market debut of Chewy could pave its entry into a number of ETFs in the coming days. Investors seeking to take advantage of the growing pet industry and this online seller of pet food and supplies could play these ETFs in the months ahead.

Renaissance IPO ETF (TSX:IPO)

This fund provides exposure to the largest and most-liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a fast entry basis on the fifth day of trading. The fund currently holds 74 stocks in its basket, with each accounting for less than 7% exposure. Technology is the top sector accounting for 36% share while communication services and real estate round off the next two spots with double-digit allocations each. The fund has amassed $46.8 million in its asset base while trading in light volume of about 30,000 shares, probably implying additional cost beyond the expense ratio of 0.60% (read: 5 ETFs That More Than Doubled S&P 500 This Year).

First Trust US Equity Opportunities ETF (TSXV:FPX)

This ETF focuses on the largest, best-performing and most-liquid U.S. IPOs and follows the IPOX-100 U.S. Index. New companies can find entry into the fund’s holding after trading for a minimum of 100 days. In total, the fund holds 101 securities in its basket with the largest allocation going to the top firm with 9.8% share. Other securities hold no more than 4.3% of the assets. The product is tilted toward information technology at 25.1%, while healthcare rounds off the next spot with double-digit exposure. The fund has accumulated $1.2 billion in AUM and trades in volume of about 94,000 shares per day. It charges 59 bps in fees a year.

ProShares Pet Care ETF PAWZ

It is the first ETF that allows investors to capitalize on people’s passion for their pets. PAWZ invests in a range of companies that stand to potentially benefit from the proliferation of pet ownership and the emerging trends of pet care. It tracks the FactSet Pet Care Index, holding 25 stocks in its basket with double-digit concentration on the top two firms. The ETF has AUM of $28.2 million and charges 50 bps in annual fees. It sees a paltry average daily volume of about 8,000 shares.

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Renaissance IPO ETF (IPO): ETF Research Reports

First Trust US Equity Opportunities ETF (FPX): ETF Research Reports

ProShares Pet Care ETF (PAWZ): ETF Research Reports

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Zacks Investment Research