The market has recently not been kind to Coinbase (COIN 0.88%). The stock is down 70% year to date (YTD), second-quarter revenue was down 60% year over year, and the company posted a $1 billion quarterly operating loss (which is more than 100% of its revenue). Clearly, the cryptocurrency platform is having a tough time with the prices of Bitcoin and Ethereum in the dumps. These developments should have any investor concerned about the future prospects of Coinbase stock. Would you really want to own a company that only makes money when Dogecoin is going to the moon?
I think there are superior places to put your hard-earned money. Here are two stocks that could be worth more than the crypto-trading platform by 2030.
Dropbox
First up, we have Dropbox (DBX +1.43%). Dropbox came out of Silicon Valley a decade ago as a file-sharing and cloud-storage company but has evolved into more of a workplace collaboration hub. It now offers security tools, e-signature products through its HelloSign acquisition, and document analytics through its DocSend acquisition. With all these new tools, the company has steadily grown its paying subscribers, hitting 17.37 million in the second quarter of this year, up from only 9.9 million in the same 2017 period.
Steady growth in paying users has led to consistent financial growth from Dropbox. Revenue hit $2.25 billion over the past 12 months, with free cash flow at $713 million. As you can see from the chart below, both numbers have steadily risen since Dropbox's initial public offering (IPO) in 2018. Management aims to generate $1 billion in annual free cash flow by 2024.
NASDAQ: DBX
Key Data Points
Dropbox currently has a market cap of $8.9 billion, and should easily reach a market cap of $20 billion by 2030 if the company generates $2 billion annually in free cash flow while trading at a price-to-free cash flow (P/FCF) ratio of 10. This is the multiple around where it has traded historically. If the company can hit its 2024 target of $1 billion, it will need to double free cash flow over the six-year period from 2024 to 2030 to reach $2 billion. While not an easy task, as long as the company keeps consistently growing its revenue each year, I think it is well within reach.
Data by YCharts.
IAC/InterActiveCorp
The second stock on our list is a unique conglomerate named InterActiveCorp (IAC 0.43%). The company focuses on buying and building consumer internet brands, most famously the leading dating app company Match Group. However, unlike other conglomerates, IAC consistently buys and then spins off subsidiaries as stand-alone publicly traded companies. It has done this numerous times over its 25+ year history with companies like Match Group, Expedia, and Vimeo.
Since 1995, investors in IAC have seen their capital appreciate at a 13% compound annual growth rate (CAGR), compared to just 10% for the S&P 500 over that same time period. With the company's long-tenured management and a culture of rational capital allocation, I believe these outsized returns can continue for the next decade. And the best part? IAC currently trades at a huge discount to its potential earnings power. If we exclude its stakes in publicly traded companies MGM Resorts and Angi, and the valuation of its private holdings in Turo and Vivian Health, IAC has an enterprise value of only $2 billion. Management expects its Dotdash Meredith division to generate $450 million in annualized adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) sometime within the next few years, or an earnings multiple of around four. And this excludes its other operating businesses like Care.com and the Ask/Search division. From my seat, this looks like a huge discount that investors can take advantage of.
NASDAQ: IAC
Key Data Points
Given how cheap the stock is right now, and with a management that has a phenomenal long-term track record, I think shareholders will be happy owning IAC stock through 2030. Right now, IAC has a market cap of around $6.9 billion. Can the company hit a $20 billion market cap by 2030? That'd require the stock to grow at a CAGR of 15% for the next eight years. This is above IAC's long-term return rate, but I think it is doable.
On the other hand, Coinbase has shown nothing but inconsistency since debuted on the public markets. Revenue growth has turned sharply negative (down 60% year-over-year), and with how erratic the cryptocurrency market is, Coinbase's financials look entirely unpredictable. Compare that to Dropbox's consistent growth and IAC's long track record of creating shareholder value, and it is easy to see which stocks are better picks for your portfolio this decade.
