Morning Markets: Back in July we wrote our first piece about Luckin Coffee, a new Chinese unicorn. Now it’s raising again and could double its still-new valuation.
When Luckin Coffee raised $200 million this summer, we covered the round asking “what is Luckin Coffee, and why did it raise $200 million?” It turned out that Luckin is a quickly-expanding Chinese coffee chain, with a strong mobile ordering component.
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And that fast growth means it consumes lots of capital. So much so that just months after that new $200 million made Luckin a unicorn, the firm is raising once again. Reuters reports that the firm could pick up between $100 million and $300 million, pushing its valuation from $1 billion to $1.5 billion to $2 billion.
Luckin is among friends when it comes to raising this sort of money. As we wrote yesterday, the supergiant round phenomenon 1 stems in large part from China, where two of its cities take two of the top three slots, in terms of supergiant activity per municipality.
What comes next for the company is interesting. Presumably, Luckin is spending its capital on expansion, meaning that it’s far from profitability in any capacity.
But down the road, when it is established and no long in hyper-growth mode, Luckin can’t expect enormous margins. Obvious, mobile-focused cognate Starbucks, for example, consumed around 70 percent of its revenue in its most recent quarter on its cost of revenue expenses, and “store operating expenses.” The company’s eventual operating margin of around 15 percent makes Starbucks profitable, but not like a software company.
Starbucks currently trades for around 20 times earnings, sporting a trailing revenue multiple of 3.5 (per Yahoo Finance). Those are not software multiples.
So Luckin is rapidly growing into a company to rival Starbucks in China, but it is doing so while raising like a software company; at some point, the disconnect will show.
Regardless, Luckin has yet to lock down the round. We’ll see if any of its prior investors (Legend Capital, GIC, Joy Capital, and Centurium Capital) lead its next infusion.
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Illustration: Li-Anne Dias
Supergiant rounds are investments that are $100 million or larger↩
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