Fresh off its IPO, Chewy might be the next company to get crushed by Amazon

Chewy IPOChewy IPOReuters

  • Amazon poses a major threat to PetSmart-owned Chewy in the online pet-food space, according to a report by Wedbush Securities.
  • Amazon's size and large balance sheet have enabled it to offer steeper discounts on first-time orders, Wedbush found by studying 80 pet food products offered by both companies.
  • Chewy went public earlier this year, raising about $1 billion and surging as much as 88% on its first day of trading.
  • Visit the Markets Insider homepage for more stories.

One of this year's billion-dollar IPOs might find itself in the crosshairs of e-commerce giant Amazon.

Chewy, which raised about $1 billion in its public-market debut earlier this month, can count Amazon as its biggest threat, a team of analysts at Wedbush led by Seth Basham said in a research note on Wednesday.

"AMZN is the one primary threat to CHWY's growth, in our view," Basham said in the report. "AMZN's aggressive [50% off] offer may lead to slower new customer growth at CHWY or limit margin expansion if CHWY matches it."

Amazon and Chewy are the largest players in the online pet-food space, but Chewy has seen stronger growth in recent years, according to Wedbush.

Wedbush analyzed the prices of 80 popular pet-food products offered by the two competitors and found that Amazon offered lower prices through discounts on recurring and auto-ship orders, thanks to the company's colossal balance sheet. According to Chewy's S-1 filing, the company lost almost $268 million on $3.5 billion in revenue last year.

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The analysis also found that Chewy and Amazon had the same prices for almost all of the products included in the study, and both usually offered a 5% discount on recurring orders. But, Amazon's deep pockets allowed it to tack on an additional 5% or 10% discount when customers ordered a subscription to five or more products within the same month.

The table below compares subscription products from Chewy, Amazon, and other pet-food retailers.

Wedbush online pet food chartWedbush Securities

Amazon has also started promoting discounts of up to 50% on customers' first auto-ship orders on certain brands compared to Chewy's standard 30% discount, Wedbush's analysis found.

"Of the 80 items we priced, the effective price for a customer's first auto-ship order was 17% higher at Chewy than Amazon," the report said.

This isn't the first time a smaller competitor has faced the daunting task of taking on Amazon. The e-commerce company has begun to spread into logistics, pharmaceuticals, and other business segments by capitalizing on its massive operating budget. Last year, Amazon paid more than $750 million for PillPack, an online pharmacy startup.

"CHWY has a solid business model and compelling customer economics, but the AMZN threat must be monitored," the report said.

Chewy shares are down 8.5% from their June 14 debut.

Chewy shares

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