To say this thing, sometimes it is really hard to predict, when you think luckin coffee will be wool-style “drink down”, but by the murky water company exposed the negative news of financial fraud, the company’s share price has plummeted from $26.2 to only $4.27, the market value of nearly 40 billion yuan evaporated, and eventually suspended.
A few months after the incident, Luckin has now received a delisting notice from the NASDAQ exchange. It’s a lot of emotion, and the market is full of opportunities, and sometimes you’re down without regulators.
How was Luckin targeted by Murswater? How is it shorted?
When it comes to Luckin Coffee, it can be said that no one knows, with the name of Starbucks in China, but unlike Starbucks, it takes full advantage of the new retail model of mobile Internet and big data technology, so it has obvious Internet attributes. Since its establishment in 2017, the brand has burned countless dollars along the way, and its business model, though very simple, is very effective: it is to spend big money to subsidize (smashing opponents with money), thus quickly seizing market share, after several rounds of financing market value reached $3 billion. As soon as the money was in place, Luckin began to expand rapidly, opening more than 2,700 stores in just one year.
After that, Luckin Coffee began to use the most primitive and violent methods – price war, playing the name of high-tech coffee, the market does not accept cash, only by mobile phone payment to press low-cost, and by virtue of the first cup of free to send 50% discount coupons, buy two to one, buy five to send five, this almost half-buy half-way preferential activities, attract consumers, but also ask the star endorsement, let the monthly active users from 180,000 to 433 million.
Not only that, but the endorsement of it by the international Bellette Investment Company, coupled with the beautiful books, has made U.S. investors feel that Luckin Coffee is a rare potential stock. With these mats, Luckin Coffee will be listed on NASDAQ in 2019, with a market value of $4.2 billion. You might think that this near-loss coffee-selling model can also be listed on NASDAQ? Americans are certainly not stupid.
After that, Luckin Coffee, while patching up users and relying on fake accounts to maintain, while releasing all kinds of good news, such as unretailing strategy, began selling milk tea, so that the stock price all the way up, the maximum market value of $10 billion. In fact, at this time, the root has been planted. After the general company listing, shareholders have two ways to cash out, one is to sell the stock, but the general new stock has a ban period, can not be sold casually;
Major shareholders, including Luckin(Luckin’s largest shareholder), and others, cashed out their shares in 2019 with equity pledges, cashing out a total of $2.5 billion before and after the ban period, and the large-scale capital began to sell shares, cashing out $1.5 billion, equivalent to using U.S. investors’ money, inviting Chinese people to drink coffee and making a fortune, but at this time Luckin Coffee has been targeted by Mursy Water.
This hunky water company is a dedicated short investment company, the boss is a Chinese tong, the company name is also taken from the meaning of “muddy fish”, relying on short profits, and the operation mode of Chinese enterprises are very well understood, mainly short overseas listed in China, Hong Kong, European stocks and so on, is the investigation of the company’s fraud master, before Luckin coffee, there are a number of companies by its “take down.” This time, Hunshui received an anonymous report to learn that Luckin there is data fraud, in fact, has lost money, there is a short opportunity.
In order to investigate, Hunshui hired 1,418 students and 92 regular employees at the cost of 981 Luckin coffee market squatting, secretly patting coffee order numbers, estimating the number of stores and takeaways, so as to obtain first-hand data, most noticing on January 31 this year, the release of an 89-page report, accusing Luckin Coffee of seriously falsifying financial and revenue data, and said the report took nearly three years to collect documents as many as 254, More than 10,000 hours of market video, and the actual survey of more than 10,000 consumers.
Under U.S. stock market rules, the annual report will be delisted, once the loss of the market will be billions of dollars, and financial fraud, the company is fined up to $25 million, plus 10 to 25 years in prison. In this way, the two harmtoins to take its light, Luckin coffee on April 2 this year reported themselves, broken tail survival.
You may not know what is called short and where its profit point is. First of all, shorting requires several prerequisites, first of all, the company has the conditions to be shorted, second, the company’s financial report is problematic, there is a false or too good, third, the stock price rose a lot, there is a lot of room for decline, and finally, the company’s statements are opaque, investors are vulnerable to outside information.
In contrast to investing in stocks, shorting is not to buy stocks but to borrow from brokerages, and this loan is a similar futures delivery period, to a certain period of time must be borrowed shares back to the broker, and pay fees, which has a profit margin, shorting the company through various negative news to make the company’s share price plummet profit. Of course, this takes a lot of time to collect a variety of information enough to pry investors’ self-confidence, short than the risk of long, do more than the loss of principal, and short losses are not on-line, because the stock is unlimited space to rise.
Raise a chestnut. We are optimistic that A shares are now 100 yuan / share, then how to make a profit, you pay a handling fee to the broker to borrow a share of A stock, and then immediately sell, you now have 100 yuan in cash, because you are not optimistic about this stock, so he will fall according to your expectations At this time became 80 yuan / share, you immediately spend 80 yuan to buy 1 share, and before the delivery period to return this 1 share to the broker, this operation is called closing, and futures trading, your profit is 20 yuan (not counting fees), this is short. As it turned out, Hunwater’s 89-page report sent investors to lose information about Luckin, causing Luckin’s stock to plummet and suspend trading.
It’s not just the Luckins that’s being shorted.
In fact, there are more than the Luckins that are being shorted by the murky water. Since its establishment in 2010, the company has shorted 18 shares (stocks with assets or revenue in mainland China as part of the main body of the company), including Focus Media, New Oriental, Huishan Dairy, Anta Sports, and Minhua Holdings, the parent company of Chihuashi Sofa.
This year, in addition to Luckin Coffee, The Company has also issued a series of reports questioning the aquiry, with whom to learn and other domestic companies fraud. These companies, most of which were shorted by the murky waters, ended up with three results, with short-term volatility in share prices, privatization de-listing, return to A-shares, or direct suspension of trading, and six companies have now been delisted.
Internationally, short-sing-strapped institutions like Murrow water include Citron, Glaucus, Gotham City, Gotham City, Anonymous Analytics, and so on, with most of their shorted companies’ shares plummeting and many forced to delist. Among them, such as Green Technology, China High-speed Channel, Multi-Global Water, Jiahan Forestry, Fu’s Copway, Net Qin, Huishan Dairy, Oriental Accommodation, Xinhua Finance, China VOIP Digital, etc., are all companies that have been shorted by the market in these years.
Why do short-sing companies get their hands on it frequently?
Why are these short-selling companies available frequently in the market? It is understood that in the U.S. or Hong Kong market, most stocks can be securities or buy put options, and the domestic market only some stocks can be securities, domestic analysts only study good companies or valuable companies, almost no short report (this is also an unwritten rule);
Objectively speaking, shorting and longing are the same as the market’s necessary trading means (as long as not malicious), the stock is in fact through the supply and demand to determine the price, and short is the high selling low buy. Airdrop company is not a speculator, airdrop company just found a bubble, and punctured him, the real cause of the bubble is not short ingress company, is short ingress company’s own problems and regulatory disadvantage, is the result of people blindly chasing up.
To be clear, the flies don’t bite the eggs. Of course, if the company itself is not a problem, or the financial report is not over-whitewashed, even in the face of short reports do not have to worry, real gold is not afraid of fire.
In addition, Chinese companies do not have to panic when they are subjected to malicious shorting. Untrue and inaccurate information should be immediately responded to and countered, communicating with investors, while in the market, the company can stabilize the company’s share price by buying back shares and delivering good news, and more importantly, to protect the interests of the company and investors through legal means.
First, to report to the listed police and securities regulatory agencies, the publication of false information and the funds behind the investigation and confirmation of the relevant personnel criminal responsibility; Third, through the form of civil relief to the listing place or china’s courts to file a civil action, to investigate the short-singrtort liability.
Let’s get back to the luckin coffee question again. To be fair, did Luckin’s top brass want to cheat money in the first place? They may really want to create their own Chinese coffee at first, but they miscalculate Chinese demand for coffee, which is deeply rooted in China’s tea culture, and coffee is still mostly social, and The Chinese don’t need so much everyday coffee. As a result, the coffee market in China is neither huge nor growing rapidly.
In the face of limited demand and no shortage of competitors in the domestic market, Luckin from the beginning of the price war, the business model itself is flawed, relying on “preferential” to attract most of the users are price sensitive and rely on discount coupons for a living, stop subsidies after the user will naturally lose a lot of damage, hurt the enemy a thousand self-loss eight hundred, Luckin still can not make a profit, only to continue burning money. Even without the murky water company, luckin’s path will be hard.
Now, Hundo is helping Wolfpack short-cut a game, saying it exaggerates revenue, subscribernumbers and capital spending. At one point, Aichi’s shares fell more than 12 per cent after the short-sending news. Like many other Chinese companies that exaggerate their data at the time of the IPO, Aichi’s business growth cannot reasonably justify the authenticity of its financial statements.
Reflections after luckin
Today’s Luckin Coffee, despite its financial fraud scandal, is still opening its stores at an alarming rate. It seems to return to normal, but the undercurrent surges. As of May 12, Luckin Coffee had an average of 10 stores a day in the second quarter of this year, bringing its total of 6,912 stores. The pace of expansion, though slower than in the first quarter, was still faster than in the same period last year. At the same time, in another news, Luckin Coffee in the Beijing market began to shrink stores, is expected to close 80 stores, including affected by the outbreak factors and store profits can not be sustained.
At the same time, we also learned from luckin coffee’s official website that the company had received a written notice on May 15 from the NASDAQ Listing Qualification Division, which decided to delist it. Luckin said the company plans to hold a hearing. The company will continue to list on NASDAQ until the outcome of the hearing is announced, but there is no guarantee that the panel will agree to the company’s request to continue listing. From stock suspensions, CEO classes, high-level blood change, (insist) on the subsidy, to stores “shut down and turn”, this series of actions can not help but make people guess that Luckin Coffee is trying to “self-help.”
Luckin incident also let us see that China’s Internet companies in its choice of development path, on the one hand, is to do down-to-earth, not eager to expand, always with such short-sing companies like Hunshui to spur their own words and deeds; Luckin, with a motive for targeting financial instruments, is in fact on a no-go path once he chooses to start the money-burning model.