What happened
Shares of Snap Inc. (SNAP 27.63%) popped as much as 14.8% this week, according to data from S&P Global Market Intelligence. The camera, messaging, and social media company got an analyst upgrade, potentially good news from a competitor, and rode the positive broad market performance this week. As of this writing, shares of the stock are up 14.7% since last Friday's close.
So what
There was minimal official news out of Snap this week, but investors still got some positive indicators that may have caused people to buy shares. First, JMP Securities put out a buy rating and a $42 price target on the stock. Shares currently trade at $15, so this would be some tremendous upside for the company if JMP Securities is correct.
Second, there has been more heat on social media and video competitor Tik-Tok. The Federal Communications Commission (FCC) wrote an open letter to Apple and Google (which control the mobile app stores) asking the Chinese-based app to be removed because of privacy violations, among other things. If TikTok gets taken off the app stores or is even banned in the United States, that would likely benefit Snap's business with one less social company out there competing for people's attention.
Lastly, Snap has benefited from the broad rise in stock prices this week. Over the last five trading days, the Nasdaq 100 Index is up almost 4%. While a lot less than the 15% gain Snap's shares got, it definitely had an impact on the company's share price this week.
Now what
Analyst upgrades or not, investors should be evaluating whether Snap stock is a buy based on how much cash they think the company will generate in the future. Over the last 12 months, it has generated $4.4 billion in revenue and just over $200 million in free cash flow. Given Snap's market cap of $25 billion right now, investors need to expect tons of future revenue growth combined with healthy cash generation.
Management is coming out with unique products, like the latest Snapchat+ subscription for power users. The service is $3.99 per month and could help increase revenue generation from its core user base. If you are going to buy the stock, you need to believe these new products will help revenue grow at a high rate for many years and translate into billions a year in free cash flow.
