On Breakingviews – China’s wannabe Starbucks brews a muddy IPO, says petesweeneypro
A barista delivers a coffee for a customer at a Luckin Coffee store in Beijing, China July 17, 2018. Picture taken July 17, 2018. REUTERS/Jason Lee
Luckin, established in 2017, has proven excellent at two things: opening new stores as rapidly as possible in a race to overtake Starbuck’s China footprint, and convincing backers like BlackRock that this is a financially meaningful achievement. Frantically adding users at all costs is a common ploy among Chinese tech startups, but there other alarm bells too. In the prospectus filed on Monday, the company argues that its fair value roughly doubled to $530 per share between December and the end of March. It then raised funds a month later at nearly $866. To explain the sharp rise, it points to the pending initial public offering, and the ensuing conversion of preferred shares to ordinary shares, which hardly justifies the jump.
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