Shares in Chinese coffee company Luckin fell below their IPO price on Wednesday (May 22), according to a report by CNBC.
The company, which aims to overtake Starbucks as the biggest coffee company in China, has joined the likes of Uber and Lyft with the distinction of dropping below its offering price days after a debut.
Luckin opened for trading on Friday (May 17) at $25 a share, which was higher than its IPO price of $17, and it did well – surging about 50 percent its first day on the Nasdaq. However, the stock has fallen by more than 5 percent since then.
The company is only about two years old, while Starbucks has been in China for more than 20 years. Ample funding from investors like BlackRock has helped with Luckin’s rapid expansion. The coffee outfit has about 2,370 stores and so far has not been profitable, reporting a net loss of $241.3 million in 2018.
Luckin raised about $561 million from its IPO, and it plans to use that money to fuel expansion throughout China, as well as to fund new stores, customer acquisitions, investments in technology and other corporate uses.
“We have done what most people do in 15 or 20 years,” Luckin CFO Reinout Schakel said.
Coffee sales in China are expected to continue to grow; analysts say they could reach $8.2 billion this year and grow annually by 11.3 percent for the next five years.
However, tea is still China’s go-to beverage, so Luckin is trying to reach that market by offering trendy tea beverages like fruit teas topped with cream cheese. Its stores are smaller and more compact than Starbucks.
Another method used by Luckin, which is part of the reason it burns through cash so quickly, is to attract new customers by discounting its beverages, a move that Starbucks CEO Kevin Johnson has said is untenable.