Apr 3, 2020 - Economy & Business

Chinese Starbucks competitor Luckin Coffee admits to inflated sales data

Dan Primack, author of Pro Rata

Photo: Visual China Group via Getty Images/Visual China Group via Getty Images

Luckin Coffee (Nasdaq: LK), a Chinese rival to Starbucks that went public last year at a $4.3 billion valuation, disclosed that its chief operating officer fabricated around $310 million in 2019 sales.

Why it matters: This raises big questions about due diligence by Luckin's IPO bankers, who subsequently worked on both a secondary share sale and convertible bond offering that relied on the inflated data.

  • Market reax: Luckin went public at $17 in May 2019. It hit a closing high of $50.02 per share in January, before the coronavirus knocked it down to $26.20 on Wednesday. One day later, it closed at $6.40 per share and is poised to open even lower today.
  • The bottom line: "An anonymous report publicized by U.S. short-seller Muddy Waters earlier this year raised suspicions about the company’s accounting. Luckin said at the time that the report was false, misleading and irrelevant. But in fact it seems very relevant. One interesting allegation, beyond the fabrication of revenue, is that Luckin manipulated order numbers in its app to give an embellished image of its business. More sophisticated investors relied on third-party vendors to collect data beyond companies’ financial statements. But if this accusation is well-founded, that means they need to pay even closer attention to the question of what data can reasonably be trusted." Jacky Wong, WSJ

Go deeper

As techlash heats up again, here's who's stoking the fire

Illustration: Aïda Amer/Axios

As controversies around online speech rage against a backdrop of racial tension, presidential provocation and a pandemic, a handful of companies, lawmakers and advocacy groups have continued to promote a backlash against Big Tech.

The big picture: Companies like Facebook and Google got a reputational boost at the start of the coronavirus lockdown, but that respite from criticism proved brief. They're now once again walking a minefield of regulatory investigations, public criticism and legislative threats over antitrust concerns, content moderation and privacy concerns.

Cities are retooling public transit to lure riders back

Illustration: Sarah Grillo/Axios

After being told for months to stay away from others, the idea of being shoulder to shoulder again in a bus or subway terrifies many people, requiring sweeping changes to public transit systems for the COVID-19 era.

Why it matters: Cities can't come close to resuming normal economic activity until large numbers of people feel comfortable using public transportation.

The policies that could help fix policing

 Illustration: Sarah Grillo/Axios

George Floyd's death has reignited the long and frustrating push to reform a law enforcement system whose systemic flaws have been visible for years.

Why it matters: Solving these problems will require deep political, structural and cultural changes, experts and advocates say — but they also point to a handful of specific policy changes that, while not a cure, would make a difference.