Chewy: A Bestiary of Recurring Revenue

The matter of Chewy, Inc. (CHWY) presents itself as a curious case for the discerning investor – one who, like myself, views the market not as a realm of ephemeral gains, but as a vast, echoing library of predictable yields. Recent tremors – the announced departures of the Chief Technology Officer, following the prior exit of the Chief Financial Officer – might, to the uninitiated, appear as portents of decline. Yet, these shifts are merely the rearranging of volumes within a larger, more immutable collection. The stock, diminished by some thirty percent since the autumnal equinox, offers a peculiar invitation to contemplation.

The true architecture of Chewy’s resilience, I posit, lies not in the brilliance of individual administrators, but in the relentless geometry of its Autoship program. Eighty-four percent of net sales flow through this automated current, a fact which, were one inclined to mysticism, might suggest a preordained destiny. It is a system of recurring revenue, a labyrinth of monthly deliveries, and within its predictable pathways, a certain security resides. In the third quarter, this stream expanded by 13.5%, exceeding the broader industry’s growth – a subtle, yet significant, divergence. The company expands its active customer base and the revenue generated per customer by approximately five percent each – a slow, inexorable accretion, like the growth of coral within a submerged city.

The acquisition cost of these repeat purchasers, naturally, diminishes with each cycle. A curious economy of scale, reminiscent of a Borges tale wherein a library contains not books, but the potential for all books. The service subtly directs customers toward the pharmacy – a specialized domain where Chewy holds a leading position in the United States by prescription volume. The automated delivery model, it seems, is particularly well-suited to the cyclical demands of pharmaceutical refills. The resulting increase in gross and adjusted EBITDA margins – fifty and one hundred basis points respectively – is a modest gain, yet one that hints at a deeper, underlying order.

The company funds its growth not through precarious debt, but through the steady flow of subscription revenue. This allows for investment in expansion – a foray into Canada, and a planned entry into veterinary care through “Chewy Vet Care” clinics. Fourteen such clinics now exist, a network slowly taking shape. While these physical locations introduce higher operating expenses, the company possesses a substantial cash reserve – $675 million, unburdened by debt – providing ample resources for experimentation. It is a prudent approach, akin to a cartographer meticulously charting an unexplored continent.

The recent leadership changes, while noteworthy, should not obscure the fundamental strength of the underlying business. The departure of key figures is a common occurrence in the ceaseless churn of corporate life. Autoship, however, remains – a reliable engine of free cash flow. Combined with the growing pharmacy business, and the company’s robust cash position, Chewy presents a reasonable margin of safety for a stock currently trading at eighteen times next year’s earnings estimates. It is not a spectacular valuation, but a quietly reassuring one – a small, well-bound volume within the vast library of the market, promising a predictable, if modest, return.

2026-02-11 23:12

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