The Chinese company that was touted as the next great challenger to Starbucks filed for Chapter 15 bankruptcy protection on February 5 in New York. It was a spectacular fall for a company that was last valued at $3.2B.
With over 4,500 storefronts across China, Luckin Coffee experienced exponential growth after having been founded in 2017. A misrepresentation of $300M in retail sales from its 2020 SEC filings led it to be delisted from the NYSE, its stock price falling over 82%. It was a reflection of the lack of confidence in the company and the ability to trust their financial figures.
After paying back a $180M fine for the discrepancy on their financial statements, the company was able to regain investor confidence as the stock price slowly increased. However, the news of their bankruptcy filing led to a mass selloff, of which it is uncertain if the company can recover.
The fall of Luckin Coffee bodes well for Starbucks, which could potentially acquire the company and their large footprint in China for peanuts. It would expand their reach in a lucrative and growing market. It also serves as a warning to investors to be wary of companies that might be too good to be true.