Goldman Sachs initiates coverage on Luckin Coffee with a bullish outlook: expanding against the trend amid a price war, the target of 55,000 stores in mainland China is achievable.

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Goldman Sachs has included Luckin Coffee in its coverage for the first time and gave it a buy rating, believing that China's largest freshly brewed coffee brand demonstrates a strong moat amidst fierce price competition. The mainland market still has ample room for store expansion, and improvements in profit margin and shareholder return potential serve as additional upside catalysts.

Goldman Sachs set a 12-month target price of $49 for Luckin Coffee, implying about 61% upside from the current price of $30.51, based on a valuation of 21 times expected 2026 earnings and a 10% discount for the OTC market. Leveraging its leading scale advantage and digitalization capability, Luckin has significant room to increase its market share in the freshly brewed beverage market in mainland China and regards 55,000 stores as an achievable target.

From 2025 to 2028, Luckin’s revenue and non-GAAP net profit are expected to grow at compound annual rates of 19% and 26% respectively, driven by store expansion, normalization of delivery subsidies leading to profit margin recovery, and continuous improvement in operational efficiency. Meanwhile, as the company is expected to turn cumulative losses into cumulative surplus by 2026, the space for shareholder returns will also open up—Luckin announced a $300 million stock buyback plan in April 2026, accounting for about 3% of its market value.

Target of 55,000 Stores: Scale and Digitalization Build Expansion Moat

Luckin still has ample room for store expansion in mainland China. By the end of 2025, Luckin will have over 30,000 stores in mainland China, with a GMV share of 28% in the freshly brewed coffee market, about twice that of Starbucks, the second largest brand. Using 711 Coffee (City Café)’s 35% share in Taiwan’s freshly brewed coffee market as a benchmark, it’s estimated that if Luckin reaches the same market share, the number of stores would be around 56,000.

There are three core reasons supporting this target:

First, Luckin’s average price is about 14 RMB, only half that of Starbucks and equivalent to 0.4 times the hourly wage in mainland China, laying the foundation for increased penetration thanks to high accessibility and value for money;

Second, by encouraging users to place orders on its own app or mini-program, Luckin has accumulated over 98 million monthly active transaction users and 450 million cumulative members, forming strong data-driven operational capabilities. R&D investment in 2025 exceeded 600 million RMB, ranking first among leading freshly brewed beverage brands;

Third, non-coffee products (including freshly brewed tea drinks, fruit and vegetable juices, etc.) accounted for more than 20% of cup volume in 2025, helping to expand consumption scenarios and customer groups in lower-tier cities.

Bottom-up scenario analysis also shows that, based on per capita consumption estimates in various city tiers, Luckin’s store ceiling in mainland China could reach about 69,000.

Price War Becomes Rational, Clear Path to Margin Recovery

Luckin’s non-GAAP operating margin reached a historical peak of 13% in 2023, then fell to about 11.5% in 2024-2025 due to fierce price wars with Cotti Coffee (which launched 9.9 RMB/8.8 RMB promotions across all categories from 2023 to 2024) and the dilution effect from rapid store expansion on same-store sales growth (SSSG).

The competitive landscape in 2026 clearly improves over the trough period of 2023-2024. Cotti cancelled its all-category 9.9 RMB promotions in February 2026, and channel surveys show that store-level profits have significantly deteriorated as subsidies waned, with recent net store closures.

Meanwhile, normalization of delivery platform subsidies will bring Luckin's delivery order share down from 35%-45% in Q3/Q4 of 2025 to around 30%, and combined with an expected high single-digit year-over-year decline in per-order delivery cost, Luckin’s operating margin growth is projected to turn positive from Q3 2026.

Looking forward to 2028, it is forecasted that Luckin’s non-GAAP operating margin will gradually rise to 14%, net profit margin will reach 10%, and the ratio of free cash flow to revenue will also improve to a high single-digit percentage.

Overseas Expansion: Prospects in Southeast Asia, U.S. Needs More Time

Adopts a cautious attitude toward Luckin’s overseas business, expecting overseas revenue to contribute only a low single-digit percentage by 2028.

In the Southeast Asian market, Luckin currently has about 82-83 stores each in Singapore (self-operated) and Malaysia (franchise model partnered with Hextar Industries Berhad). The size of Southeast Asia’s freshly brewed beverage market is only about 0.3 times that of China, and even referencing the expansion trajectory of Mixue Bingcheng in Southeast Asia, its overseas GMV is only a mid-single-digit percentage of the China market, so growth potential remains relatively limited.

In the U.S. market, Luckin faces higher barriers: Starbucks and Dunkin' together account for about two-thirds of the number of professional freshly brewed beverage stores in the U.S.; consumer habits of digital app ordering have yet to be established; store opening procedures are more complex and costly. Even under smooth execution, large-scale expansion in the U.S. will require considerable time.

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