On Thursday, Mizuho (NYSE:) Securities reiterated its Outperform rating on Chewy Inc . (NYSE:) with a steady price target of $42.00. Currently trading at $38, the stock sits within the broader analyst target range of $30-$47. According to InvestingPro data, Chewy has delivered an impressive 87% return over the past year, with 16 additional key insights available to subscribers. The move comes as the pet retailer successfully transitioned its retail advertising network to a fully in-house operation, employing its own first-party software platform and technology stack. This development was completed slightly ahead of the company’s projected timeline, which aimed for the end of FY24E (ending January).
Chewy’s management had previously announced plans to adopt a first-party system, and the early completion of this initiative is seen as a positive step. According to Mizuho, this move positions Chewy to reduce costs in a vertical that already boasts high gross margins, estimated at 60-70% for sponsored ads. Furthermore, the shift allows Chewy to offer vendors a more dynamic and self-service model, complete with enhanced real-time analytics that could stimulate additional demand.
The in-house platform also provides Chewy access to new advertising channels and a greater supply of ad inventory. Notably, sponsored products have recently been integrated into the Chewy app, expanding the company’s advertising reach. With current revenues of $11.4 billion and a gross margin of 29.2% according to InvestingPro, Mizuho analysts believe that there is significant potential for retail media to grow from approximately 1% of Chewy’s revenues to around 3% over the next few years.
The successful migration to a first-party advertising system underscores one of the key elements of Mizuho’s positive outlook on Chewy. The firm’s analysts anticipate that the ability to scale retail media effectively will reinforce Chewy’s position in the market and contribute to its long-term growth. This outlook is supported by Chewy’s GOOD overall financial health score from InvestingPro, which evaluates multiple financial metrics including profitability, growth, and cash flow. The reiterated Outperform rating reflects confidence in Chewy’s strategic direction and its potential for revenue expansion through enhanced advertising capabilities.
In other recent news, Chewy Inc. has been the subject of multiple analyst upgrades. Argus Research upgraded Chewy’s stock from Hold to Buy, setting a price target of $42.00, while CFRA raised Chewy’s stock rating to Strong Buy, with a target of $45. Mizuho Securities and Wolfe Research also upgraded the stock to Outperform. These upgrades are backed by Chewy’s robust financial health, highlighted by an annual revenue of $11.4 billion and healthy gross margins of 29.2%.
Buddy Chester Sub LLC, Chewy’s largest shareholder, initiated a public offering of $500 million worth of Chewy’s Class A common stock. Concurrently, Chewy agreed to repurchase $50 million of its Class A common stock from the selling shareholder.
Chewy’s third-quarter revenue was reported at $2.88 billion, slightly exceeding the consensus of $2.86 billion, largely due to a 9.9% year-over-year increase in Autoship customer sales. However, non-Autoship customer revenue declined by 13.4% year-over-year. Analysts anticipate that Chewy will see a resurgence in year-over-year growth in net active customers, recovering from a period of stabilization after the initial pandemic-induced surge.
These are among the recent developments that have shaped Chewy’s current position in the market.
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