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Motley Fool Issues Rare “All In” Buy Alert
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2022 has not been kind to the cryptocurrency market. Major tokens like Bitcoin have dropped in value by more than 50% year-to-date, with many smaller ones down even more. Compare that to the U.S. stock market, as represented by the S&P 500, which is down about 20% so far this year.
Falling cryptocurrency prices might make you think it is time to “buy the dip” on some tokens if you have some spare cash available, but crypto is far more difficult to develop an accurate estimation of value because it doesn’t follow any traditional fundamentals, like judging value based on free cash flow. For long-term value investors, this makes cryptocurrencies inherently uninvestable because they do not generate any underlying cash flow. If you care about such things, you are likely better served by keeping your portfolio invested in stocks.
Here are three internet stocks with more potential than any cryptocurrency.
First up we have Spotify (SPOT -1.05%), the leading audio streaming service around the globe. The company began as a music streaming service over a decade ago but has since expanded to more audio formats, including podcasts, live audio, and (still-to-come) audiobooks.
Spotify makes money by selling subscriptions for ad-free and downloadable music listening, as well as advertisements for its free music listeners and podcast catalog. At the end of Q1, it had 182 million premium paying subscribers and 252 million ad-supported monthly active users (MAUs) around the globe. Financially, this translated to $11.8 billion in revenue and $3.15 billion in gross profit over the past 12 months. Right now, Spotify has fairly low gross margins of around 25%, but that is because it is investing heavily in growth with its podcast initiatives. Over the next few years, the company expects to expand gross margins to 30%-plus, which should help it to start generating meaningful cash flow for shareholders.
As of this writing, Spotify stock trades at a market cap of $20.5 billion. It is tough to pinpoint a valuation on Spotify given how much the company is reinvesting for growth. But with a long-term tailwind to go after in music, podcasting, and (according to management) eventually audiobooks, I believe the company will be generating $20 billion or more in annual revenue five years from now. If that can translate to solid amounts of cash flow, that makes Spotify stock a buy today.
SPOT Revenue (TTM) Chart
SPOT Revenue (TTM) data by YCharts
Second on our list is Match Group (MTCH -1.00%). Match is the leading online dating company globally, operating top brands like Tinder,, Hinge, and many others. The company has been riding the long-term tailwind of online dating, with its various apps now the top way for people to find potential romantic partners online. 
Image source: Getty Images.
Since dating apps are extremely asset-light, the business has been able to achieve phenomenal profit margins even as it invests for growth. From 2017-2021, Match’s revenue grew at a compound annual growth rate (CAGR) of 22%, with adjusted operating margins above 35% every year. This indicates the company can expand its margins further when it becomes more mature this decade.
But don’t think growth is set to slow down anytime soon. Tinder is still a monster around the globe, one of the top-grossing mobile applications in many countries, and Hinge almost 10x’ed its revenue from 2019 to 2021. In 2022, Match Group is expected to generate around $3.43 billion in revenue based on its latest guidance. Applying a 35% profit margin to this revenue gets shareholders $1.2 billion in adjusted operating income this year. With a steady long-term opportunity ahead of it and a market cap of $22 billion, Match Group stock feels much too cheap right now.
GOOG Free Cash Flow Chart
GOOG Free Cash Flow data by YCharts
Last up is a company everyone has heard of: Alphabet (GOOGL -0.27%) (GOOG -0.28%), the parent company of Google. Alphabet owns Google Search, all the different Google properties, YouTube, Google Cloud (a competitor to AWS), and many other businesses.
The thesis on Alphabet is simple. Google Search is embedded into every part of our modern lives, and it has many fast-growing subsidiaries like YouTube, Google Cloud, and Waymo self-driving vehicles. This makes Alphabet not only durable but a growing business as internet usage grows around the globe. Over the last 12 months, Alphabet generated $69 billion in free cash flow. Compared to its enterprise value of $1.44 trillion, that gives the stock an enterprise value-to-free cash flow (EV/FCF) of around 21. For a business as high-quality as Alphabet, this looks like an appealing price for shareholders with a decade-long time horizon. 
Avoid the casino that is cryptocurrency trading; buy some stocks that actually generate underlying cash for shareholders.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.
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Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

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