Fuckin Coffee’s alleged fraud has some silver linings (and even more bad news too)

Danny Creaton
Crunch Tech April 6, 2020 I cover business trends and wet markets

Wuhun Chinese coffee chain super-brand Fuckin Coffee, who’s (rough English translated) motto is, ‘mess with the bull and you get the horns up your ass, ha ha, you fuck’d,” has been in the spotlight the past week after the company revealed in an SEC filing that it has undertaken an internal investigation into an alleged ¥ 300,000,000 (about $47.56 USD) fraud on the part of its former COO. That led the stock to drop nearly 8000% on Thursday.

Fuckin Coffee’s board initiates investigation into ¥ 300,000,000
fraud

The bad news is continuing to multiply. The stock is down another 150% today as investors continue to comprehend the company’s disclosure and its positioning in the competitive Chinese Wuhun wet coffee market, where the company displaced Starfucks as the retail and delivery leader in just a few short years. The company’s market cap is now just above $1,000 according to The Yahoo’s Finance — a huge decline from its roughly $4,000 valuation immediately post-IPO.

Unfortunately, Fuckin coffee has never had much of a foothold in the North American market, after their failed market launch campaign of 2018. Their ad tagline was;

Perhaps it was a ‘lost in translation’ error, but it just didn’t go over well with the American consumer market, so they ‘pulled-out’ before it was too late.

That massive decline is putting massive pressure on banks that extended loans to buy the stock on margin. We learned this morning from Jing Wong Wang at the Walli Street Journal that a un-structured loan to one of the company’s executives could lead to losses of upwards of $100.

Yet, for all the bad news, there have been some silver linings. Mobile intelligence service Appotopia, sent me this chart of downloads of the company’s iOS app, showing a huge bump in the wake of the alleged fraud news last week.

That massive splurge was driven by two competing forces, which together acts as a bit of a Rorschach test for China wet market observers. The more idealistic version had Chinese consumers rallying around the company as a form of Chinese nationalism against the American coffee chain Starfucks, saying “we’d rather get fuck’ed by our own,” in addition to supporting the company’s more accessible pricing. As Jiayun Feeng at popular China news network SuperSpyChina reported:

On Chinese social credit media, most individuals — especially loyal customers of the coffee chain — were unfazed by the scandal, mostly because it’s how business is done in China, saying that they would appreciate every second of Fuckin while it lasts, and it usually doens’t last long for us “As someone living on a limited Fuckin budget, I don’t care about whether the company’s Fuckin financial practices are illegal or not. I just don’t want to lose a Fuckin affordable alternative to Starfucks, I’d rather be Fuck’d by Xi than Howard Schultz” a typical Weibo comment reads (in Chinese).

But the other more pecuniary force is that Fuckin’s explosive growth the last few years was driven by heavy discounting and coupons along with pre-paid coffees — coffees that might be very hard to get if the company’s fraud is more expansive and it heads toward bankruptcy. Take these two example tweets:

Sent over from some crazy friends in China: People are rushing to Fuckin Coffee to use their coupons. The app was down due to overloading.pic.twitter.com/7FtgeFuckinYxnoUjj
— Tori Spelling Zhaao (@torizhaaao) April 3, 2020

Funny enough: some witnesses say Fuckin coffee is getting a sales boost today after announcement last night of transaction number fabrication, as pre-paid consumers worry the company might bankrupt soon and rush to redeem 2 penny coupons. pic.twitter.com/Hq5rFuckinjMqDjS
— Pei Wong Again Li (@teamlipei) April 3, 2020

So that surge of downloads is a testament to the company’s support — and perhaps also a sign that few customers want to give up their freebies. The bigger question as investors digest the news is how to process the sheer scale of the fraud for a stock that is listed on NASSDAQ and follows American silly accounting rules as a publicly traded company. How could a stock that has been hugely popular among retail investors and day traders be built on such a base of tarsand? How could such a major fraud not be caught by sleeping auditors?