- Tram Ho
Luckin Coffee – a fledgling coffee chain in China a while ago, suddenly became a formidable opponent of Starbucks. However, newly leaked internal data shows that the company disguised 2.2 billion yuan ($ 310 million) of revenue in the last three quarters of 2019.
The Nasdaq-listed company said in its statement on Thursday that investors “should not rely on figures” in previous financial statements to comment on these quarters.
An internal investigation found that the figures for “cooked” sales were equivalent to 40% of Luckin’s 2019 revenue. Luckin shares plunged 75.6% on Thursday, down to only 6.4 USD / share. The company’s market capitalization has dropped to US $ 1.6 billion from US $ 6.6 billion.
Singapore State Investment Fund (GIC) – a major shareholder of Luckin suffered the biggest losses, losing USD 100 million on Thursday alone, based on the number of shares they hold in the company’s prospectus. up in March.
Other investors, including Wall Street giant BlackRock and Steve Cohen’s Point72 Fund, suffered similar losses.
Luckin suspended CFO Liu Jian and several staff members to report to him. Liu is accused of cooking deals and inflating costs between April and December 2019.
A council of 3 independent board members was formed to participate in the investigation.
The disclosure on Thursday follows a legal move filed in February against the company by shareholders buying their shares from November 13 to January 31.
On November 13, Luckin reported the financial situation for the third quarter of 2019 saying it had reached the milestone of reaching break-even point at the store level. The stock has since risen 70% from January and traded above $ 50 per share from $ 18.89 on November 12.
Short seller Muddy Waters rang the warning bell on January 31, publishing an 89-page report accusing the coffee startup of fraud. The report has accused Luckin of inflating every store’s sales daily for more than half of 2019.
However, the company’s stock price remained fairly stable until the shocking announcement on Thursday.
A source close to the investigation told Nikkei that they were surprised to find Luckin not vehemently protesting when the investigation began. And it was the silence of the company that led investors to believe that something was wrong and they began to feel scared.
Luckin, a US-based IPO company in May last year, is known for its rapid expansion strategy through burning money and a model to call for delivery or delivery only. In just two years after its inception, the chain had 4,500 locations in China, surpassing Starbucks stores here.
“Luckin has a real business … They have a customer base. Now it’s time for the company to show its ability to cope with the crisis. This is not a new story for Chinese companies either.” China, the issue is on the level of prestige. Chinese companies need to prove that they deserve the trust and trust of investors. Luckin’s case will become a highlight in that issue, ” an analyst specializing in tracking Chinese companies said.
Source : Genk