Today, Starbuck’s Chinese rival went publicon Nasdaq. Luckin Coffee’s IPO just put the company at $4 billion valuation. It raised a total of $561 million, $61 million higher than its’ initial goal of $500 million. In the exact price of the expected $17 pricing for its offering.
The $4 billion valuation is a sharp rise from it’s previous valuation. Last year, the company scored $2.9 billion valuation. It is mostly thanks to its’ massive investment from Chinese, American and Singaporean investors.
Luckin Coffee filed on going public on America’s Nasdaq last month. It is just a few weeks after its Series B+ funding round. The company raised $150 M, led by New York-based firm, Blackrock. Even though Blackrock is known for having a 6.58% stake at Luckin’s competitor, Starbuck.
Does Luckin Coffee’s IPO have a good prospect, though?
Despite its massive valuation, many people still very pessimistic on Luckin’s future. The company is not a profitable one. After two years since its’ first launch, Luckin has never tasted any profit.
It burns too many cash in a very short time. Everything has to do with its’ marketing strategy. While offering coffee at the same price as Starbucks, it didn’t stop giving a 50% or more discounts to customers.
The result is a $475 million loss in 2018, with $125 million in revenue. And in the first quarter of 2019, it already lost $85 million. Though it only made $71 million in total sales.
It would be a big problem for Luckin if it doesn’t fix its’ coffee quality. Many people in China stated that Luckin Coffee has no better coffee than Starbucks. Some even said it has similar taste to cheap instant coffee.
But Luckin still have 17 million customers from its 2,370 stores. It offers not only crazy discount but faster service than Starbuck’s. Luckin only receives cashless payment done from its app. Making coffee available for customers just within a few finger taps.
Busy office workers prefers it even more as they can have their coffee delivered to them. A complete different atmosphere than Starbuck’s cozy and spacious fancy stores.
It is still questionable whether customers will still go to Luckin when the discounts end. Because Luckin really needs to stop giving out discount to get any profit soon.
