Luckin Coffee ⬇️ 80% in 5 minutes

Friday, April 3, 2020 by Snacks
"_Doesn't taste like decaf" — "Someone's fudging the beans_"

"Doesn't taste like decaf" — "Someone's fudging the beans"

Yesterday’s Market Moves
Dow Jones
21,413 (+2.24%)
S&P 500
2,527 (+2.28%)
Nasdaq
7,487 (+1.72%)
Bitcoin
$6,754 (+8.34%)
10-Yr US Treasury
0.621%

Hey Snackers,

Want that salmon sushi roll delivered with a side of TP roll? Some restaurants are giving away free toilet paper with orders. Ride or die for the 2-Ply.

Oil surged for its best day ever after Trump said he expects the Saudi-Russia price war will end soon. Jobless claims last week doubled to 6.6M from the week before, bringing the tally to a staggering 10M newly unemployed... The US lost nearly half of all the jobs gained since the '08 financial crisis in just two weeks. These next few weeks will be tough, too.

Sip

1. Luckin' Coffee plunges 76% because it made up its sales number (#fakebrews)

Venti-sized bad karma... In under 3 years, Chinese-owned Luckin' Coffee managed to beat out Starbucks for the role of "Biggest Coffee Chain in China." With around 4.5K sleek shops, scooter delivery, and adorable coffee cups featuring deer silhouettes, what could go wrong? On Thursday, Luckin lost over 75% of its value, nearly $5B. That sort of thing tends to happen when investors find out your sales numbers are fake.

  • So 2019 was all a lie? Not a text from your ex. An internal investigation into Luckin' revealed that its COO made up the company's 2019 sales numbers. Creativity in business is great — not so awesome vis-a-vis financial numbers.
  • $413M: What Luckin' reported as its net sales for the first 9 months of 2019.
  • $310M: The difference between the lie and the truth. If the investigation's findings are correct, Luckin' actually made only $103M in sales — the rest was fake brews.

The red flags were there... and some spotted them early, thanks to an anonymous 89-page report with on-the-ground research from whistleblowers that reads like a John le Carré spy novel:

  • 1.5K employees were secretly mobilized to monitor the volume of sales through 25,843 receipts and 11,260 hours of video footage.
  • "The Smoking Guns" (the report's own words) = individual store sales were inflated by at least 88% during the end of 2019 (and fudged for the whole year)
  • "The Red Flags" (also their words) = Luckin managers have already sold half their Luckin stock — and the CMO was previously sentenced to 18 months in prison.
  • Back in Jan, short-seller Muddy Waters Research said it had bet against Luckin' stock after receiving the page-turner report, which it believed was credible.
THE TAKEAWAY

Bad national PR... This is a bad look for Chinese public companies, which some investors were already skeptical of because of China's reputation for unreliable economic data. But Luckin' IPO'd on the Nasdaq, is not gov-owned, and is regulated by the SEC, so this spill was more of a surprise.

Smoke

2. Altria sued by the FTC for (allegedly) colluding with Juul to rule the vape market

Drop the Juul (investment)... Altria is the tobacco-giant behind Marlboro cigarettes. Over the years, it's watched smokers trade tobacco-filled paper for vape-juice-filled metal. So in 2018, it dropped $12.8B for a 35% stake in the undisputed e-cig leader: Juul. That became a major liability as middle-schoolers got hooked on mango-flavored vapes — Altria lost billions. But now, it's got another big Juul-related problem:

  • Key Rule of Capitalism: Companies compete against each other to put out the best product at the lowest price (instead of colluding to undercut customers and maximize profits).
  • The Federal Trade Commission is like the referee of capitalism. And it's alleging that Altria agreed not to compete with Juul in return for the 35% ownership interest.
  • Now the FTC is suing Altria for violating federal anti-trust laws, and could force Altria to undo the $12.8B investment. Altria is "disappointed" with the decision.

Here's the extra fishy part... Two weeks before announcing its investment in Juul, Altria shut down its own e-cig biz. Then it started putting Juul coupons on Marlboro packs, and giving Juul the shelf-space that its (less popular, now dead) Altria e-cigs had. This pretty much killed any other real e-cig competition, according to the FTC. But...

THE TAKEAWAY

Collusion is kind of hard to prove... Companies know that it's a no-no, so they tend to avoid leaving a paper trail. The FTC believes it has the facts to show that Altria and Juul "turned from competitors into collaborators." But it's unlikely that this "hey, let's collab!" text was sent over iMessage or Insta DM. Altria says the FTC "misunderstood the facts" and that it will defend its Juul investment during the lawsuit — and it might actually win.

What else we’re Snackin’

  • Cancelled: SoftBank pulls its offer to buy $3B in WeWork shares from shareholders (including co-founder Adam Neumann).
  • BTW: Zoom explains how it'll address its security/privacy issues, and humble brags about how it grew from 10M daily users in December to 200M in March.
  • Un-Tax: Apple lets some video apps, like Prime Video, sell/rent movies and shows on iOS apps without Apple taking a 30% cut of sales.
  • Slow: Walgreens' sales jumped 26% in the first 3 weeks of March, but have started to fall as people become more reluctant to go outside even to stock up.
  • Cut: Scooter company Bird lays off 400 employees (around 35% of its workforce) over a Zoom webinar titled "COVID-19 Update."
  • Techy: Ikea acquires AI startup Geomagical Labs to double down on its room visualizations tech — like furnishing a Sims house.

Friday

  • The big March Jobs Report

Disclosure: Authors of this Snacks own shares of Luckin' Coffee 😢

ID: 1140098

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