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Shares of Luckin Coffee drop below IPO price

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Date: 22nd May 2019

Luckin Coffee, a firm challenging Starbucks in China, experienced a decline in its share price on Wednesday. Its share dropped by 7 percent which was below the price it put up during its initial public offering. Various other companies have suffered a decline in their share price, close to their public debut. These include the likes of Uber and Lyft.

The coffee chain is attempting to capture the Chinese market, which is majorly dominated by Starbucks. While the opening share price of the company was $25 on Friday. Luckin Coffee’s IPO price was $17, which had increased by over 50 percent on the day when the firm first went public. However, the price did not see any further growth. Conversely, it has dropped by over 5 percent.

In the fight to become the largest coffee chain in China, the company has opened 2,370 stores in the country. Starbucks, its main rival which it wishes to overtake, entered the Chinese market 2 decades back. On the other hand, Luckin Coffee has been trading for only 2 years.

There are doubts about whether the marketing strategy used by the coffee chain is sustainable. Currently, Luckin Coffee offers huge discounts in an attempt to attract customers. However, the company has failed to turn a profit to date. It incurred a loss of $241.3 million last year.

The company has been backed by investors including BlackRock, which has helped it to expand in China. The coffee chain aims to expand further in China for which it will use a part of the funds raised through the IPO.

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