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Chewy IPO: Shares jump 64% above IPO price, open at $36.00 each

Chewy’s (CHWY) stock soared in its public debut.

Shares surged 64% above their IPO pricing in their first trade to $36.00 apiece, as investors snagged shares of the online pet-product retailer. The stock pared some gains by market close Friday, ending higher by about 59%.

This comes after the Dania Beach, Florida-based company on Thursday priced its initial public offering at $22 per share, above the upper bound of the $19 to $21 per share range it had targeted. Chewy sold 5.6 million shares, and a wholly owned subsidiary of PetSmart sold 40.9 million, bringing the total amount raised to $1.02 billion.

Chewy’s opening share price at $36 apiece gave the company a market capitalization of more than $14 billion.

Chewy, which has called itself the “largest pure-play pet e-tailer in the United States,” addresses a massive domestic market for pet supplies – and one that has rapidly been moving sales online. The U.S. pet industry hit $70 billion in annual sales in 2017, according to data cited by Chewy.

Chewy derives revenue primarily through pet food, product and medication sales. It offers an Autoship service allowing pet parents to automatically reorder products, and grew the subscription program to $2.3 billion in fiscal 2018, from $115 million four years ago. The company faces competition from firms including Amazon (AMZN) and Walmart (WMT), which also provide consumers with an assortment of pet supplies.

Chewy has never reported a profit, and its net loss totaled $267.9 million for the 2018 fiscal year, from $338.1 million for the year prior. Meanwhile, total sales jumped 67% to $3.5 billion for the 2018 fiscal year, eclipsing the annual sales of other newly public companies including Lyft. However, this pace of growth was slower than the 134% top-line increase Chewy reported for the 2017 fiscal year.

Bailey the rescue dog poses for a photo in a photo booth ahead of the Chewy Inc. IPO at the New York Stock Exchange (NYSE) in New York City, U.S., June 14, 2019. REUTERS/Andrew Kelly

Before shares began trading Friday, some Wall Street analysts were already optimistic about Chewy’s potential.

“We watched the company’s IPO roadshow video and feel bullish on Chewy’s growth prospects, driven by its Amazon-esque focus on customer experience and secular tailwinds from growth in the broader pet food and pet care industry,” MKM Partners analyst Rohit Kulkarni wrote in a note Friday.

“Investors are indeed hungry for a pure-play online retailer catering exclusively to consumers’ furry friends,” Kulkarni added.

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

In 2017, Chewy was acquired by PetSmart for a reported $3.35 billion. The closely held company continues to be a majority shareholder in Chewy. Chewy reported that PetSmart would own about 70% of total shares outstanding of common stock and about 77% of voting power following the IPO.

Chewy’s IPO was led by Morgan Stanley, JPMorgan Chase and Allen & Co.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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