Luckin Coffee IPO Sees Stocks Surge By More Than 50 Percent

Luckin Coffee
Charles Zhengyao Lu, non-executive chairman of Luckin Coffee, poses during the company's IPO at the Nasdaq Market (Photo: Reuters / Brendan )

Starbucks' main competitor in China, Luckin Coffee, is now taking the fight to Wall Street. The Chinese coffee shop chain made its US stock market debut on Friday.

The stock was met by eager investors, which immediately made it jump by as much as 50 percent. Luckin Coffee's stocks traded as high as $25 per share before it pulled back to 20 percent above its IPO price at closing. As of this writing, Luckin Coffee stocks are still trading between $21 and $22, up by 20 percent from its original IPO price. 

Luckin Coffee initially priced its IPO at $17 per share. The coffee chain, which has become very popular due to its more affordable drink menu, was valued at more than $4 billion after it went public. The company managed to raise more than $570 million during its IPO.

While still remaining relatively unknown in the United States, Luckin Coffee has taken China by storm. The coffee chain, which was originally founded in October 2017, managed to creep up to its main competitor with the opening of more than 2,400 stores in 28 major Chinese cities.

The company is planning to overtake its rival Starbucks in terms of the number of stores it has in China by opening an additional 2,000 stores by the end of the year.  With the added capital gained through the IPO, Luckin Coffee may very well achieve their plans for 2019.

Unlike most western countries, Chinese consumers aren't really big coffee drinkers. Luckin Coffee is well aware of this, which is why it is also planning to offer a myriad of tea-based drinks.

According to consumer data, the average person in China only drinks six cups of coffee a year. This is a significantly low number when compared to the 388 cups in the United States and the 867 cups in Germany.

Despite its success in the US stock market, Luckin Coffee still has a long way to go before it can go toe-to-toe with Starbucks. The Chinese firm is still relatively tiny when compared to its competitors, which has announced plans to further expand into the Asian market.

Similar to other startups that have recently gone public, Luckin Coffee is currently losing a lot of money. In its recent earnings report, Luckin Coffee reported a net loss of $82.2 million for the first quarter of this year. For 2018, the company reported losses of $241.3 million on sales of just $125.3 million.

The massive amount of loss is apparently a part of Luckin Coffee's strategy, in that it is willing to lose money to gain a larger market share. The firm is also planning to spend big on its marketing campaign while keeping its prices at the same level. Offering cheaper but quality drinks are the company's way of stealing customers from its rivals. 

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