Luckin Coffee, a quickly growing and deeply unprofitable China-based coffee group, sold 33 million shares at $17 each in its debut. Fastly, a company that powers the distribution of Internet content, sold 11.25 million shares for $16 apiece.

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The twin pricings were expected. Both companies will begin to trade Friday morning. However, instead of kicking off their lives as a public company in their own sunlight, they will debut under two shadows.

First, Uber’s post-IPO troubles are now infamous. You can’t demand as much as attention as has over time, and then fail to measure up to your own hype. And, second, first earnings report as a public company did not go as well as expected, sending its shares down sharply in after-hours trading.

So, not the easiest moment to go public for any firm, but Fastly and Luckin are going out all the same. If it’s time, it is time.

Luckin

That Luckin is going public at the top of its range is a good thing. Why? It consumes lots of cash.

Luckin sold 33 million shares in its IPO, not 30 million as initially intended. So, discounting the underwriter’s option, Luckin raised $561 million (gross). That’s a lot of money for a company founded in just 2017.

When Luckin first indicated its IPO price range, we doodled up a chart of what the firm could raise in its offering. Recall the scale of those initial estimates compared to the firm’s prior rounds:

So no matter where it priced, Luckin was set for a record single-serving haul of capital.

Which is for the best, as Luckin torched $93.5 million in the first quarter of 2019. In all of 2018 its operations consumed $195.3 million. The big numbers continue, with the firm’s Q1 2019 loss coming in at $82.2 million. It’s full-year 2018 loss was a steeper $241.3 million.

Fastly

Fastly’s pricing has a slightly different vibe to it than Luckin’s. The firm isn’t growing as quickly, nor is it as cash-hungry. With smaller losses, Fastly doesn’t have the same capital needs.

But pricing at the top of its range is still a welcome result. It goes to show that firms growing at less than 50 percent that still lose money can find a reasonable response from the public markets. For a lot of other firms looking to debut, that’s good news.

The IPO parade is stretching longer with each passing day (hello, Fiverr), making Fastly’s success good news. And since the market just saw Lyft, Uber, and Pinterest stumble in quick succession, the good news is welcome.

Next up for each company is first-trading. More on that shortly!

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What Luckin will be worth, and how much money it intends to raise are, at this point, unknown. Initial IPO filings traditionally do not contain more than a placeholder figure for how much may be raised in a debut. Luckin scribbled $100 million in its F-1 filing for its own placeholder.

(Note: an F-1 is basically the same thing as an S-1, except for Foreign-HQ’d companies, hence the “F” prefix. In practical terms, the information disclosed in F-1s is interchangeable with Form F-1s.)

But what we do have is a look at how quickly Luckin is growing, and how much that growth has cost. One thing is clear: Luckin is not going public late; this company is still baking.

Financial Highlights, Lowlights

Lucking Coffee is a high-burn, growth-oriented operation. However, even in the current tech era, where losses in the name of growth are not considered profane, Luckin is spending a lot of money. Let’s examine.

Growth

Luckin had effectively no revenue in 2017. That’s because it was founded in October of that year. Thus, it’s 2018 revenue of $125.3 million is 336,178 percent greater than what the firm recorded in the preceding year.

What we care more about, then, are its quarterly figures. Here are its quarterly revenue figures and sequential growth rates starting in Q1 2018, and concluding Q1 2019, in yuan:

• Q1 2018: 13.0 million yuan
• Q2 2018: 121.5 million yuan (+834.6 percent from Q1)
• Q3 2018: 240.8 million yuan (+98.2 percent from Q2)
• Q4 2018: 465.4 million yuan (+93.3 percent from Q3)
• Q1 2019: 478.5 million yuan (+2.8 percent from Q4)

For reference, the final 478.5 million yuan figure is $71.3 million.

Reading those figure we can see two things. First, that Luckin grew staggeringly quickly in 2018. And that its growth rate went from astronomical toÌýslow on a sequential basis. If aÌýmature SaaS company grew under 3 percent from its preceding quarter it would be in hot water.

So, did Luckin manage to staunch losses when its growth rate fell?

Losses

While Luckin had no essentially no revenue in 2017, it did have costs. They were modest, however, in comparison to its 2018 expenses. Let’s stick to our prior reporting time frame and go over the company’sÌý²Ô±ð³ÙÌý±ô´Ç²õ²õ±ð²õ:1

• Q1 2018: 132.2 million yuan (net loss equal to 1020.7 percent of Q1 2018 revenue)
• Q2 2018: 333.0 million yuan (net loss equal to 274.1 percent of Q2 2018 of revenue)
• Q3 2018: 484.9 million yuan (net loss equal to 201.4 percent of Q3 2018 revenue)
• Q4 2018: 669.0 million yuan (net loss equal to 143.7 percent of Q4 2018 revenue)
• Q1 2019: 558.1 million yuan (net loss equal to 115.3 percent of Q1 2019 revenue)

Yes, Luckin slowed its losses in Q1 2019, the same period that saw its revenue growth slow to near-zero. However, it still lost $88.2 million in the three-month period.

Luckin’s slowing growth rate from the quarter of 2018 to the first quarter of 2019 did not help its net losses enough to bring that figure under 100 percent of its revenue.

Cash Use

Perhaps there is good news for Luckin amidst its cash flow figures? Not really.

In 2018 Luckin Coffee consumed $195.3 million in cash merely to fund its operational deficits. It burned a similar $191.2 million to fund its investing activities. Closer in time to today, the company’s operational cash flow came to -$93.5 million in Q1 2019. In a turn-around, Luckin’s investing cash flow was positive in the first three months of 2019, bringing in $11.4 million.

So What?

What an amazing F-1. I have no idea what this company is worth, how big it will get, or what it’s current health is.

Luckin’s vertical growth in 2018 came with huge losses. No one expected anything different. But how investors willÌývalue the company when it’s operating cash flow is so shockingly negative isn’t clear.

And if the company’s growth purchased to-date has been efficient isn’t clear yet. In its F-1 filing, Luckin notes that its customer acquisition cost has fallen from 103.5 yuan to just 16.9 from Q1 2018 to Q1 2019. However, its “new transacting customers” grew throughout 2018 only to fall sequentially from 6.5 million to 4.3 million from Q4 2018 to Q1 2019.

If that is why the firm’s growth collapsed from the fourth quarter of last year to the first quarter of 2019, then we can presume that Luckin may have a customer retention problem. And it was spending so much more before to acquire customers, the impact of a leaky bucket may be severe.

According to the private markets, Luckin is worth just under $3 billion. Let the games begin!

When 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 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 phenomenonÌý1 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, , consumed around 70 percent of its revenue in its most recent quarter on itsÌýcost 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 (, , , and ) lead its next infusion.

PS. Don’t forget to vote!

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