Luckin Coffee shares surge on its IPO

Luckin Coffee shares surge on its IPO

Each ADS represents eight Class A shares, the company said in a filing with the US Securities and Exchange Commission last week.

The two-year-old startup, which in April received a round of funding from BlackRock, is the latest in a long line of money-losing IPOs to hit the United States market this year. Is it latest money-losing company to make its trading debut on USA markets.

The Beijing-based coffee chain raised US$561 million (S$770 million) by selling 33 million American depository shares (ADS), more than the 30 million it originally said it would sell, at US$17 each, at the top end of an indicative range of US$15 to US$17.

Well, fast forward less than two years: Luckin Coffee now owns 2,370 locations across China, has submitted IPO papers in the USA and is poised to disrupt the coffee market long dominated by Starbucks. In the private market, Luckin in April raised $150 million from the firm in a Series B round of funding, according to Crunchbase.

The coffee chain, co-founded in June 2017 by Chief Executive Qian Zhiya, plans to primarily use the IPO proceeds for store network expansion, customer acquisition, marketing, research and development. Last year, it lost $475 million. Luckin held only a 2.1 % share in 2018.

China may become an increasingly important market for coffee retailers due to the country's low per-capita consumption of the beverage and rising middle-class affluence, Bloomberg Intelligence analysts wrote in January.

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Luckin, with a focus on convenience and affordability, is seeking to lure urban office workers who don't need the big plush spaces offered by Starbucks. Many customers are initially attracted to the coffee chain by its free vouchers, and the company plans to keep investing heavily in discounts and deals.

Luckin's outlets are cashless and designed for fast pick-up as well as delivery, with an app that rushes out deliveries in about 18 minutes.

Shares trade under the ticker LK on the Nasdaq.

The company competes with Starbucks in China.

The company has warned it may continue to incur losses in the foreseeable future. It brought in $125 million in revenue past year, but spent much more than that on coffee beans, store rent and other costs.

-With assistance from Crystal Tse.

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