By Starbucks Corp (NASDAQ: SBUX) has seen a renewed wave of investor enthusiasm in recent sessions following reports that nearly 30 private equity companies have shown interest in its China business – valuing it at as much as $10 billion.
However, while aforementioned bids suggest significant optimism, the fundamentals, according to experts, tell a more sobering story.
In fact, some have explicitly raised red flags about $10 billion valuation.
That said, Starbucks stock is up nearly 20% versus its year-to-date low at the time of writing.
Starbucks China faces a long list of challenges
Starbucks China, once the undisputed leader in the country’s premium coffee segment, has seen its market share plummet from 34% in 2019 to just 14% in 2024.
This erosion is largely due to aggressive expansion by local rivals like Luckin Coffee, which now boasts over 24,000 stores in China – more than triple Starbucks’ 7,758 locations.
Luckin’s success stems from its low-cost model, rapid digital adoption, and localized offerings.
In contrast, Starbucks has struggled with adapting quickly to shifting consumer preferences and price sensitivity.
“The market in China evolves so quickly that it makes it difficult for a brand with such a large footprint like Starbucks to adapt quickly enough,” said Ben Cavender of China Market Research Group.
Same-store sales in China were flat in Q1 2025 after four consecutive quarters of decline.
Even recent efforts – like launching sugar-free drinks and cutting prices by an average of 5 yuan – have yet to yield meaningful traction.
What may be the fair value of Starbucks China
Starbucks shares briefly surged over 3% following CNBC’s report of the $10 billion valuation.
But analysts were quick to temper enthusiasm.
Citi Bank noted that such a valuation would only make sense if a buyer saw a very clear path to recovering pandemic-era losses and boosting profitability.
The company’s current market cap hovers around $108 billion, and its China business contributes roughly 8% of global revenue.
That implies a fair valuation of less than $9 billion, still optimistic given the competitive headwinds and operational challenges.
SBUX price-to-earnings ratio stands at a lofty 34.6, and its forward guidance has been withdrawn amid uncertainty.
Analysts remain cautious, with most maintaining a “Hold” rating and a median price target of $95.
“This may be overvaluing the business and not placing enough weight on how competitive China’s coffee market is,” Cavender added.
Starbucks China at $10 billion: optimism or overreach?
While the $10 billion figure may reflect investor optimism, it risks ignoring structural challenges Starbucks faces in China.
Declining market share, flat sales, and rising competition suggest that any buyer would need to overhaul operations and redefine the brand’s identity in a rapidly evolving market.
For institutional investors eyeing Starbucks China, therefore, the real question is: at what price does optimism become overreach?
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