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Why Snap Stock Popped 6.6% Today

By Rich Smith - Mar 20, 2020 at 6:03PM

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Wells Fargo thinks unprofitable Snap is nonetheless "attractively valued."

What happened

Easy come, easy go. What began as a "green day" on the stock market on Friday turned back into deep, dark red ink. The Nasdaq Composite closed down 3.8% today and the Dow Jones Industrial Average was down 4.6%. But not everyone saw red.

Investors lucky enough to own shares of social media star Snap (SNAP 4.17%) still ended the day on an up note, with Snap stock up 6.6% at market close.

Fingers snapping

Image source: Getty Images.

So what

You can thank the friendly analysts at Wells Fargo for that. This morning, reports, the investment banker upgraded shares of Snap to overweight and assigned the $10 stock a target price 40% higher -- $14 a share. They argued that Snap shares look "attractively valued at current levels given SNAP's large and highly engaged audience, improving audience growth, rapid revenue growth and improving profitability profile."

Snap is not "immune" to the effects of the coronavirus, adds in a note covering the same upgrade. However, it has limited exposure to small business and international traffic, which "could insulate it somewhat relative to peers" in the event the U.S. -- and the world -- fall into recession.

Now what

Let's also not forget the big picture forest for the micro-economic trees. Across the nation, Americans are confining themselves to their homes, and with many school systems closed, Snap's biggest demographic -- teenagers -- now have a lot more time on their hands and may be able to surf Snap much more than usual.

This is almost certain to be good news for Snap's business. Of course, it doesn't eliminate the nagging worry: Currently, Snap remains an unprofitable company and a perennial burner of cash. Last year, the company burned through $341 million in negative free cash flow and posted a net loss of more than $1 billion.

Will increased usage by "e-learning" teenagers produce the revenues necessary to give Snap critical mass and turn an unprofitable company profitable? Only time will tell, but for today, at least, investors are giving Snap shares a resounding vote of confidence.

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