Luckin Coffee's performance fraud Luckin Coffee event Analysis of the reasons for fraud

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Qianjie-Luckin Coffee's Analysis of forgery

On April 2nd, Luckin Coffee revealed that his performance had been falsified, and his share price on NASDAQ plunged 76 per cent. At this time, it was less than a year after Lucky landed in the US stock market.

According to Ruixing, since the second quarter of 2019, Liu Jian, the company's chief operating officer (COO), and several employees who reported to him, have engaged in some wrongdoing, with sales related to fake transactions of about 2.2 billion yuan. According to the company's previously disclosed results, the company's revenue in the second and third quarters was 2.4 billion yuan, which means that 92% of the revenue in these two quarters was related to false transactions. It is not surprising that the company's share price has plummeted by nearly 80%.

The main reason why Rui Xing exposed the ugliness of her family is that her performance has been falsified. On February 1 this year, Muddy Waters, a well-known short seller, released an anonymous report from a third party, providing evidence of fraud and analyzing the inherent flaws in Lucky's business model, especially with regard to the company's performance fraud. The report provides five "hard evidence", pointing out that the company's sales in the third quarter of 2019 were exaggerated by at least 69% and by at least 88% in the fourth quarter. Ruixing's shares fell 11% after Muddy Waters issued the report, but Lucky quickly denied all the allegations, and the company's shares rebounded by 16% at one point. But two months later, the paper finally could not contain the fire, and Rui finally admitted that the performance had been falsified.

For domestic consumers, if Starbucks' attractiveness mainly depends on brand, lucky mainly depends on price. In order to maintain low prices and expand at a high speed, lucky can only rely on continuous spending. When the market begins to raise more and more questions about Ruixing's money-burning model, especially after listing, investors need to see not only the speed of Lucky's expansion, but also the improvement in profitability, not just endless money burning and losses. It was under this pressure that Ruixing handed over a financial report that responded and comforted investors in the third quarter of last year. Under the background that it could not make a full profit for the time being, the company announced that it had made a profit at the store level in the third quarter. Specifically, the company lost 530 million yuan in the third quarter, but made a profit at the store level (excluding marketing expenses) of 190 million yuan. But in the end, it turns out that Luckin Coffee's so-called profit improvement is actually financial fraud.

This, in turn, shows that Ruixing has no real confidence in its business model. In the US stock market, where the cost of breaking the law is extremely high, Ruixing prefers to take risks and gain investor recognition through financial fraud rather than through its own management, which itself is a negation of its own business model, indicating that it does not see the hope of making a profit.

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