Luckin Coffee 2022 IPO: Everything you need to know about Luckin Coffee

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By :  ,  Financial Writer

What is Luckin Coffee?

Luckin Coffee is a coffee retail brand with over 5,600 physical locations across China, making it the nation’s second-largest coffee chain behind Starbucks. It was founded in October 2017 and boomed in popularity due to its app-focused business model on which frequent discounts are offered to attract and retain customers.

More than traditional coffee retailers, Luckin Coffee highlights app-based order and pickup, going so far as to eliminate cashiers in its stores.

When is Luckin Coffee’s IPO?

Luckin Coffee announced it plans to relist on the Nasdaq as soon as the end of 2022 under the ticker ‘LC’. Luckin Coffee was first listed in May 2019 but was delisted amid an accounting fraud scandal one year later.

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What happened to Luckin Coffee’s first IPO?

Luckin Coffee’s first IPO raised $562m in 2019, and shares reached a high of $50 in January 2020 after Luckin reported a third-quarter product sales surge of 558%. However, in April 2020, Luckin admitted to fabricating over $300m in sales to retail and business customers.

Chinese regulators also found about $140m in questionable supplier payments to companies with convoluted connections to both founders, Charles Lu and Jenny Qian Zhiya.

After years of accounting fraud by Luckin Coffee were revealed, and shares of the company plunged by 75% in a single day. The company was delisted in June 2020 and forced to pay $180m to the US Securities and Exchange Commission for defrauding investors.

What is Luckin Coffee’s business model?

Since its first IPO, Luckin Coffee has begun making significant changes to its business model.

Originally, its app-based business model is credited with skyrocketing Luckin to China’s second-largest coffee retailers in only a couple of years. The coffee company used frequent and steep discounts available on its app to attract new customers, along with a promise to deliver your coffee in under 30 minutes.

Ahead of the relisting, Luckin executives claim they are focusing on retaining loyal customers through the app with a more reasonable voucher strategy, instead of giving away free drinks to attract new users as they once did to fuel Luckin’s meteoric growth.

Luckin Coffee has also closed several hundred underperforming locations to focus on quality over quantity. Although its new franchise model has grown the number of physical storefronts to 5,600, more than Luckin had at the time of its delisting.

How to trade Luckin Coffee shares

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How much is Luckin Coffee worth?

Luckin Coffee filed for bankruptcy in 2021 to restructure its debts while keeping stores open. Although it was delisted, shared in Luckin have continued to trade over-the-counter in the US. As of the beginning of 2021, Luckin has a market valuation of about $2.5bn.

Is Luckin Coffee profitable?

Luckin Coffee is not currently profitable. The company reported a net loss of $3.6m for Q3 of 2021, the company’s most recent financial report. However, net revenue grew 105.6% from the same quarter of 2020, indicating Luckin could soon be the first Chinese chain of coffee retail stores to reach profitability in China. Luckin has stated they do not plan to pay dividends in the foreseeable future.

Who are Luckin Coffee’s competitors?

Luckin Coffee’s main competitor is Starbucks. In the first few years of Luckin’s meteoric rise, no other company came close to the reach and revenue of Luckin and Starbucks.

However, Luckin imitators have since popped up across China including Manner Coffee, mainly based in Shanghai, and Coffee Box, which began as a third-party coffee delivery app and is now focusing on convenience store partnerships.

It doesn’t help that Luckin Coffee’s app-focused business model is easy to replicate, which Starbucks, Manner Coffee, and a slew of other beverage start-ups have already begun doing. Starbucks has partnered with Alibaba to increase its online offerings.

Meanwhile, other international brands such as Tim Horton and McDonald’s are also expanding their coffee business in China.

How does Luckin Coffee make money?

Luckin Coffee makes its money through retail coffee sales. Its online app encourages bulk ordering for students and partnerships with offices to maintain recurring customers.

Luckin is also using “private traffic” marketing to double down on existing customers—a marketing tactic popular in China for increasing user intimacy that involves funnelling customers into private WeChat groups where they’re offered exclusive discounts to use in-app.

Since delisting, Luckin has also engaged in a franchise model wherein partners looking to open stores on behalf of Luckin Coffee must front equipment costs and a deposit in addition to handing over 40% of the store’s profit once they reach sustainable revenue targets.

Who owns Luckin Coffee?

The ownership of Luckin Coffee is split among several banks including Crédit Suisse, Morgan Stanley, Goldman Sachs, Barclays, and Haitong International after Lu, Luckin’s largest shareholder, co-founder, and former chairman defaulted on margin loans from the banks totalling $533m. Lu’s shares were pledged as collateral. The remainder of the company’s shares are divided among additional financial institutions and individuals. The exact equity split is not currently in the public domain. 

Luckin Coffee board of directors

  • Dr. Jinyi Guio – Chairman and CEO
  • Wenbao Cao – Director and Senior VP
  • Gang Wu – Director and Senior VP
  • Feng Liu – Independent Director
  • Sean Shao – Independent Director
  • Yang Cha – Independent Director
  • Wai Yuen Chong – Independent Director
Related tags: Insights China IPO Stocks

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