Chewy, the online business of PetSmart, up 85% at the IPO

Shares of Chewy, PetSmart's online pet retailer, climbed 85 percent Friday morning after the company's public launch.

The retailer's shares opened Friday at $ 36, offering the company a market capitalization of $ 14.3 billion. At the beginning of the afternoon, the stock price was up 57%, to settle at $ 34.53.

Thursday night, Chewy sold 46 million shares at $ 22, a price higher than the indicative range of $ 19 to $ 21 she had given. The amount of shares offered as part of the transaction was $ 5 million higher than forecast and generated $ 1 billion.

Chewy, founded in 2011 by Ryan Cohen and Michael Day, claims to be "the largest online retailer of pure pet entertainment products in the United States." She has distinguished herself from many competitors by a customer service including access 24 hours a day, 7 days a week, as well as two days of online order shipping.

Her loyal client base, with a growth rate of 60% and sales of $ 3.5 billion, helped her attract investors during her IPO, said Kathleen Smith, director of Renaissance Capital, which manages exchange-traded funds focused on IPOs.

"Today, in the United States, we have penetrated only about 14% of Internet users," said Chewy CEO Sumit Singh, on the show "Squawk on the Street "of CNBC, before the start of the company's activities. "It's a little chewy – it's a $ 70 billion industry – we're penetrated into about 10% of households."

Yet society is not totally positive. The high cost of shipping has eroded its margins. From fiscal year 2017 to 2018, the group recorded a net loss of $ 268 million, down from a net loss of $ 338 million.

But sales have risen rapidly, from $ 26 million in 2012 to $ 3.5 billion in 2018, according to the company's S-1 filing with the Securities and Exchange Commission.

Following its IPO, the parent company PetSmart will own approximately 70% of the common shares of the company and will hold 77% of the voting rights. PetSmart, which is backed by private equity firm BC Partners, acquired Chewy in 2017 for $ 3 billion.

"The acquisition of Chewy was strategic for the company because it added online expertise and scale and complemented PetSmart's physical activities while immediately increasing PetSmart's online penetration," said a senior analyst. Moody's in a report published in February. "However, at $ 3 billion, the Chewy acquisition was financed primarily by additional debt and, like most high-growth online retailers, we estimate that Chewy will have negative EBITDA at least for the next 12 to 24 months. "

Since its sale to PetSmart, Chewy has expanded its private label business and launched "Chewy Pharmacy", an online pet pharmacy.

Chewy indicated in its prospectus that it would seek to continue its growth by expanding the range of products offered, finding new customers and expanding its activities in the pharmacy sector.

The company is now trading on the New York Stock Exchange under the symbol CHWY.