Tough (NYSE: CHWY) and Twilio (NYSE: TWLO) has set fire to the stock market in 2020, as the shares in both companies more than tripled this year thanks to the coronavirus pandemic, which gave their company a nice shot in the arm.
While Chewy benefited from an increase in online purchases of pet supplies during the pandemic, Twilio’s tailwind came in the form of an acceleration in the adoption of cloud-enabled contact centers.
Let’s take a closer look at how the year developed for these two high-flyers and why they look like solid investments for 2021.
1. Chewy has stepped on the gas and it can maintain its growth
Chewy started the year on its feet with solid guidance during the first quarter, driven by favorable shopping behaviors that led to an increase in purchase size and a sharp increase in customers. In fact, Chewy has seen tremendous growth in its active customer base during the first nine months of the year.
Active customers (millions)
Growth from year to year
Net sales per active customer
A combination of higher customer numbers and an increase in net sales per active customer has helped Chewy to impress on revenue and marginal growth by 2020, as the chart below shows.
Chewy is about to end the year on a high, as the company’s guidance for this quarter indicates. Sales are expected to increase between 43% and 45% compared to the same quarter last year, while full-year sales are expected to land between $ 7.04 billion and $ 7.06 billion – an increase of 45% to 46% compared to the previous year. That would be better than the 40% growth Chewy achieved in 2019.
Chewy believes it can sustain this momentum in the new year – its customer service has increased by 600 basis points so far in 2020. The company does not expect to incur additional customer accommodation expenses in 2021 as the new customers acquired this year are likely to continue buying a post-pandemic scenario, as indicated by the increase in the average order value.
Chewy’s expectations are out of place. Online sales of pet products grew at a much faster rate than physical sales even before the pandemic. For example, the online pet market in the US jumped by as much as 275% in 2018 compared to just 14.4% growth in physical retail, according to estimates from third parties.
The good news for tough investors is that this market still has plenty of room for growth. The e-commerce channel reportedly accounted for only 13% of sales of pet products last year. The share of the online channel is expected to grow to 27% in 2020 and 34% next year, according to the asset management company Needham & Company.
Chewy has become a major player in this space by 2020. Management pointed out at the conference call for the second quarter earlier this year that online sales of pet products are set to increase $ 3.9 billion by 2020, according to the pet industry provider Packaged Facts.
Chewy’s full year 2020 guidelines suggest that it could add $ 2.2 billion in revenue this year, leading to a lion’s share of total revenue in the overall market and placing itself in a good position to take advantage of the long-term opportunity. Throw in the fact that Chewy has diversified into new multi-billion dollar verticals, and this should give investors more reasons to be bullish on this growth stock in the long run.
2. Twilio delivers another fantastic year
Cloud communications specialist Twilio has had another good year despite a shaky start. The revenue guidance it issued in early 2020 was met with lukewarm guidance, but the company has got its operations together with fantastic growth quarter after quarter.
Twilio’s revenue increased 52% compared to the same period the year before during the third quarter of 2020, thanks to an increase of 21% in the number of active customer accounts and an increase in existing customers’ purchases. The company expects $ 450 to $ 455 million in revenue during the quarter, an increase of 36% to 37% over the previous year.
If Twilio reaches the midpoint of its indicative interval for the fourth quarter, its full-year revenue would increase by approximately 48% compared to 2019 levels. But it will not be surprising to see Twilio exceed its own expectations, as the recent $ 3.2 billion acquisition of customer data provider Segment is likely to open up additional cross-selling opportunities for the company.
Segments are expected to increase Twilio’s market opportunity by $ 17 billion and increase the fantastic momentum that the company is already witnessing. This is because the customer data platform market is expected to reach $ 10 billion by 2025, compared to $ 2.4 billion last year, according to a third-party estimate.
In addition, Twilio now has a new service for its existing customers. This could help Twilio further increase its dollar-based net expansion rate – a measure that rises as the company’s existing customers purchase additional offerings or increase their spending on their services. As the chart below shows, Twilio’s dollar-based net expansion rate has started to creep in late, while the number of active customer accounts has moved steadily north.
The addition of Segments to the mix could lead to further growth in Twilio customers’ purchases. The segment should also help the company increase its customer base due to the rapidly growing market in which it operates.
Taken together, the addition of a new growth path and the growing adoption of cloud contact centers in the wake of the COVID-19 crisis could help Twilio shift to a higher gear and exceed the 30% annual revenue growth rate it currently expects to clock over the next four years. . All this makes Twilio a technical stock that is worth sticking to, even after a fantastic year 2020 when the new year can provide more good news for investors.