TIME Spending & Saving

Budget-Minded Travelers Have to Look Harder for Deals

airplane-landing-runway
Getty Images

Consolidation means would-be deal hunters must turn to new sites for savings

One of the ways the TV show The Americans makes it clear that it’s a period piece is by showing its Soviet spies working at a travel agency. Yes, those were indeed different times when a family could support a decent lifestyle by booking trips for tourists. When the web emerged in the 90s, travel agencies were one of the first to fall by the wayside.

A generation of web startups emerged helping travelers to quickly find the cheapest fares on their own PCs: Expedia, Travelocity, Orbitz. Priceline offered its distinctive “name your own price” model before giving in and adopting the basic discount business model of the others. Meanwhile, independent travel agents in North America and Europe closed up shop.

After a while, consolidation became inevitable and it grew harder to differentiate between the myriad travel sites. A generation of younger startups like Kayak and Trivago emerged to improve on things, by offering meta-search engines that searched the travel search engines for deals that were getting harder to find. Airlines and hotels wised up to the game, inserting add-on fees onto their posted fares or offering deals available exclusively through their own sites.

In time, consolidation gobbled up the young startups: Priceline bought Kayak and Expedia acquired Trivago. Many of the older sites are still around , for anyone loyal to them–Travelocity, Hotels.com, Cheaptickets.com–only they’re owned by either Expedia and Priceline.

And earlier this month, when Expedia said it would pay $1.3 billion for Orbitz, it left basically two major online-travel sites. There are a few mid-sized travel companies remaining but some, like TripAdvisor, have seen their stocks rise on speculation that its shares could soon be in play.

For consumers, the trend probably isn’t a positive one. It may well make finding the best travel deals that much harder, now that there’s less incentive for Expedia and Priceline to compete with others for the best deals. The Justice Department may review the proposed Expedia-Orbitz deal for antitrust concerns. If regulators act to derail the transaction, Expedia will owe Orbitz $115 million, so Expedia has a strong incentive to see the acquisition go through.

In the meantime, competition from other web giants hasn’t really emerged. There have been reports that Amazon would enter the online-travel space in January, but they haven’t panned out yet, and Amazon’s plans may be as modest as some package deals as part of Amazon local. Google’s purchase of ITA hasn’t made it a huge presence in online travel, but it allowed it to create a spiffier interface for the same flight data that can be found on Kayak, Orbitz and others.

If there’s any hope for bargain-hunting travelers, it may come from the ever flowing emergence of new travel startups. The clearest example is Airbnb, the accommodation-rental marketplace that more than any other startup of the past decade has shown there’s still growth for new entrants. Airbnb was recently valued around $13 billion, or slightly less than the combined market value of Expedia and Orbitz and about a fifth of Priceline’s.

For airfares–or for hotels and vacation rentals that can’t be found in the lodging-sharing economy pioneered by Airbnb–there are mostly smaller players. HomeAway, which offers through VRBO.com and other sites vacation rentals that avoid Airbnb, has a $2.9 billion market cap. CheapOair and Skyscanner represent a new, more-meta kind of airfare engine that scours fares available to online travel agents.

In the end, consolidation may simply push budget-minded travelers away from the biggest companies and toward new startups that are figuring out new angles for finding travel values. Vayable, for example, connects travelers with locals who can act as tour guides, while Gogobot uses a social model to help tourists plan trips based on their interests.

And then there’s Flightfox. The San Francisco-based startup, sensing the difficulty of finding the best travel deals online in an era of consolidation, uses crowdsourcing to tap the expertise of others who know the tricks of finding deals. In a way, Flightfox has brought the online-travel industry back full circle to the traditional travel agent. After two decades of online travel sites, having a human book your itinerary may be the once again the best option.

TIME stock market

Here’s the Biggest Change in Technology in Recent Memory

Yelp Yelp. If you’re on vacation or new in town (or even not-so-new in town) and you want to learn about what’s around you — shops, restaurants, dry cleaners, gas stations, bars, you name it — Yelp has you covered, complete with user reviews so you can separate the good from the bad.

It's not some new, slick gadget or big idea

With the bulk of the earnings season behind us, the stock market appears to be in a much better mood than it was a month ago. The S&P 500 is up 3.8% over the past month, while the tech-heavy Nasdaq 100 is up an even healthier 5.9%. Tech, it seems, is a popular sector refuge in the sea of uncertainty facing 2015.

But a closer look at the tech earnings from the past month shows a more complex story as not all tech names are being favored equally. In fact, some of the companies that dished out disappointing forecasts were hammered hard. If there is one key trend that emerged from the recent parade of fourth-quarter earnings, it’s that 2015 is turning into a stockpicker’s market for tech shares.

This is in contrast to the past couple of years, when waves of enthusiasm or caution swept across the tech sector at large. Last year, for example, an early rally for tech led to concerns that another bubble would emerge–concerns that were quickly dispelled by a brutal selloff come April. By June, stocks were recovering, and the Nasdaq 100 ended last year up 18.5% and the S&P 500 up 11.8%.

One trend from 2014 that’s continuing into this year is the outperformance of larger-cap tech stocks. Smaller tech shares tend to do well in the several months following their IPOs, then have a harder time pleasing investors. A good example is GoPro, which went public at $24 a share in June, surged as high as $98 in October and and fell back to $43 last week in the wake of its earnings report.

GoPro’s post-earnings performance illustrates the selective mood of investors. The company blew past analyst expectations with revenue growth of 75% and higher profit margins. But the stock plummeted 15% the following day as analysts raced to lower price targets. Why? GoPro’s outlook was seen as too weak to support its lofty valuation and its chief operating officer was leaving.

That pattern played out in other smaller tech companies. Yelp slid 20% after its own earnings report that beat forecasts but that showed worrisome signs of slower growth and slimmer profits this year. Pandora fell 17% to a 19-month low after disappointing revenue from the holiday quarter. Zynga finished last week down 18% after warning this quarter will be much slower than expected.

What all of these companies also have in common are uncomfortably high valuations. Even after the post-earning selloff, GoPro is trading at 37 times its estimated 2015 earnings. Pandora is trading at 75 times its estimated earnings, while Yelp is trading at an ethereal 371 times. The S&P 500 has an average PE of just below 20.

So which companies did the best this earnings season? As a rule, it was big cap names serving the consumer market: Apple, Twitter, Amazon and Netflix. What these four companies have in common beyond strong earnings last quarter is that all were seen as struggling by investors during some or all of 2014.

Compare them to big-cap tech names that posted decent financials in the fourth quarter but that weren’t seen as struggling before, but instead were seen as thriving tech giants. Google, for example, is up 6% over the past month, while Facebook is up 1%. Both are enjoying steady growth that was so consistent with their past performance it has a ho-hum quality to it.

By contrast, Apple, which had been portrayed by critics as a gadget giant past its prime, has seen its stock rally 21% in the past month to a $740 million market cap, the first US company to be worth more than $700 billion. Amazon, which investors feared would suffer prolonged losses because of its expansion plans, is up 29%. So is Twitter, another object of investor worry in 2014. Netflix, a perennial target of bears, is up 40%.

So what have we learned about the technology sector so far this year? On the whole, investors are favoring tech stocks in a world of uncertainty – where negative interest rates have become bizarrely commonplace, and where the next market crisis could come from a crisis involving the Euro’s value, or China’s economy, or oil’s volatility, or Russia’s military aggression.

But at the same time, investors have grown more selective about the tech names they invest in. They might snap up hot tech IPOs, but they’ll drop them quickly if those companies can’t deliver over time. They prefer big tech, especially companies that cater to consumers. And if those tech giants can engineer a turnaround, they’re golden.

TIME eBay

The Rise and Fall (and Rise and Fall) of eBay

Ebay Reports Quarterly Earnings
Justin Sullivan—Getty Images

The online auctions site is being carved up to keep investors happy. What will be left won't be pretty

Remember when people seriously talked about their eBay addictions? You might not, because you’d have to go back a dozen years or more. And anyway, it was really more of a compulsion, the way mobile games or chat apps have more recently become. Still, if you look you can still find multiple confessions of self-described eBay addicts.

“Hard to believe it’s only been six months since I met my great love,” began one addict’s confession in the heady days of 1999. “I refer, of course, to eBay.” Of course. The site’s manic youthfulness was captured back then in a TV ad where a pudgy Bezos-ish man danced and sang how “I did it eBay!”. Quirky, yes, but eBayers got it. eBay was the “it” company, the rare dot-com that saw its stock surge after the tech bust, fueled in large part by the compulsions of its buyers.

No fad lasts, though, and eBay had to weather a rough transition as our online addictions moved to MySpace, then to Facebook, then to Angry Birds and beyond. Its stock peaked at $59.21 a share in late 2004 before entering into a tailspin after it became clear the broad enthusiasm for online auctions was fading. Within five years, the share price had fallen below $10 a share.

In the rare turnaround for an Internet company, eBay came back–reaching as high as $59.70 a year ago–because of two key factors. The first was PayPal, which eBay bought for $1.5 billion in 2002. The second was CEO John Donahoe, who realigned the company at great effort to not only keep PayPal ascendant but also to revive eBay’s original marketplace.

Today, the stock is still performing well, trading around $55 a share. But don’t read too much optimism into that. Shareholders aren’t bailing because the company has worked so hard to please them. Stock buybacks trimmed eBay’s share count by 5% in 2014–enough, its CFO reckons, to add 8 cents a share to the bottom line this year. And eBay is ready with another $3 billion to spend on repurchasing more shares if necessary. Meanwhile, 2,400 workers are being laid off this week.

Beneath such investor-pleasing maneuvers, there remains a renewed and growing conviction that the decline of eBay’s core operations is starting all over again. It’s not at all uncommon for Internet companies to see a meteoric rise and fall (it’s practically become the rule), but eBay seems to be charting a different narrative: The rise and fall. And rise. And fall.

eBay’s decline this time is happening differently. The company is literally splintering apart in the form of corporate spinoffs. Last September, under pressure from boardroom bully Carl Icahn, eBay unveiled a plan to break off PayPal into a separate company later this year. Last week, after the company reported earnings, eBay announced another surprise spinoff: its Enterprise business, which will either launch an IPO or be partially sold to another company.

eBay Enterprise is a modestly growing division that is less visible to consumers using PayPal and the e-commerce site. As part of Donahoe’s turnaround, eBay began helping traditional retailers manage their online sites. Chains like Toys’R’Us, Ace Hardware and Dick’s Sporting Goods have signed up, bringing eBay $1.2 billion in revenue last year. Last quarter Enterprise revenue rose 9%, against a 1% decline in the year-ago quarter.

PayPal is also thriving, growing steadily at around 19% for the past couple of years. And so the weak part of the post-spinoff trio will clearly be eBay itself, the lean marketplace rump that will be left once the choicer meat is sliced away. Its revenue grew by 6% in all of 2014 and only 1% in the fourth quarter–the big quarter for retailers because it includes the holiday shopping season.

Excluding volatile foreign exchange rates, eBay’s marketplace rose 5% last quarter, but even that is disappointing considering the performance of other online retailers. ChannelAdvisor, which has long tracked sales on e-commerce sites, estimated that eBay’s sales during the holiday season–basically, November and December–rose 7.3%, well below the mean growth of 16% for all sites it tracks. Amazon’s grew 27% in the period. But what ChannelAdvisor calls “third party” retailers, everything from BestBuy to NewEgg to Tesco to Rakuten, rose 34%.

Parsing e-commerce sales is still a matter of guessing at a fragmented market, but here’s the bottom line for eBay: It’s not just that auctions aren’t popular now, it’s more that eBay’s transition to regular e-commerce has hit a wall. Its Web site redesign is already dated. It’s struggling to stay high in Google searches. Many of its most trusted sellers can also be found on other sites, like Amazon. eBay is just one of many shingles they hang out these days.

Which is too bad for online shoppers because often the prices and shipping charges on eBay make for cheaper than Amazon and elsewhere. But shoppers are often too harried to compare prices these days. Sites like Etsy and Alibaba seem to have more momentum, while Pinterest and Zulilly are where many go to impulse buy online. Meanwhile, Best Buy and others are doing better at reaching out to their customers online.

The result is that there’s little momentum left for eBay, once the champion of e-commerce momentum. No one dances around and sings “I did it eBay!” anymore. Even Donahoe & Co. are throwing in the towel to a certain extent. The site remains a very nice place to buy—rather useful if you bother to figure it out—but at the end of the day just one of many online marketplaces. The addiction that made eBay a star has left eBay behind.

So, it seems, have PayPal as well as the Enterprise business that Donahoe built. That’s okay with shareholders because they now have a chance to invest in PayPal and the non-consumer ecommerce business, while selling their shares in the good old eBay that once ruled our online shopping impulses. The legendary auction site will soon become the auctioned goods, only with fewer and fewer bids as the clock ticks away.

TIME Companies

This Brilliant 29-Year-Old Has the Hardest Job in Silicon Valley

Box, Inc. Chairman, CEO & co-founder Aaron Levie, second from right, gets a high-five during opening bell ceremonies to mark the company's IPO at the New York Stock Exchange on Jan. 23, 2015.
Richard Drew—AP Box, Inc. Chairman, CEO & co-founder Aaron Levie, second from right, gets a high-five during opening bell ceremonies to mark the company's IPO at the New York Stock Exchange on Jan. 23, 2015.

Well, one of the hardest. The CEO of recently IPO'ed Box faces tough competitors and a quickly changing market

Well, so much for that first-day pop. After pricing at $14 a share on Jan. 22, Box saw it stock rise as much as 77% on its first day of trading. In the six trading days since then, it’s lost more than a quarter of its peak value, closing just above $18 a share on Monday.

The first-day pop is both an honored Wall Street tradition and a sucker’s bet that individual investors keep falling for. Most tech IPOs that start out the gate overvalued yet with momentum behind them are as a rule trading significantly below those initial highs several months later. It only took Box a matter of days, not months.

The success of Box’s IPO isn’t important just for the company’s shareholders, buy for other tech companies – especially those in the enterprise market – planning on going public in coming months. The thing is, the outlook for Box is devilishly hard to predict because it’s a grab bag of challenges and opportunities, of promise and peril alike.

Box is a company growing revenue by 80% a year but it’s lost in aggregate nearly half a billion dollars, mostly on sales and marketing costs to win customers. It has one of the most respected young CEOs in Silicon Valley, influential partners and blue-chip customers but it’s toiling in a market that’s fragmented, changing quickly and growing more competitive by the week.

The bear case on Box is easier to articulate and so it may be gaining the upper hand among investors right now. First there are the losses, shrinking but still substantial. Net loss totaled $129 million in the nine months through October, down from $125 million in the year-ago period.

The hope is that as Box grows, losses will keep declining and eventually disappear as the company pushes into the black. But that may not happen as quickly as some expect. In the most recent quarter, net loss grew by 21% from the previous quarter, nearly double the 10% growth in revenue for the same period.

Then, there’s the valuation. Without profits, defenders point to the price-to-sales ratio but even here Box’s valuation is high. Box’s market value of $2.2 billion is equal to 11 times its revenue over the past 12 months. Even at its $14 a share offering price, Box was priced at 9 times its revenue.

Finally, in a stock market where the most coveted private tech companies are delaying IPOs, Box’s approach to the public market had more than its share of glitches. The company disclosed its IPO plans last March then delayed the offering until this year. Box initially planned to raise $250 million in the offering, then lowered the take to $175 million.

And yet there is reason to think that, if enough goes right for Box in the next year or so, Box could still have a bright future ahead of it. That’s because – unlike IBM, Oracle and other enterprise software giants – Box is well positioned to benefit from the inevitable shift from bloated, aging old business productivity software to an era where content is not just stored securely in the cloud but is created and collaborated there.

One unusual twist about Box’s long journey to its IPO is that, even while people disparaged the company’s worrisome financials, few if any had bad things to say about its CEO. Aaron Levie has a knack for seeing market shifts in advance. He founded Box in 2005 after seeing that online storage was finally ready to take off.

As Box competed with popular startups like Dropbox and, increasingly, with giants like Microsoft, Levie pushed Box away from simple online storage to areas of the enterprise cloud that will grow. Lower costs and stronger security are enticing companies in most industries to conduct more internal communications on the cloud as opposed to local networks that have been vulnerable to outside hackers.

Of course, Dropbox, Microsoft and others are also gunning toward this online-collaboration market. So rather than a generalized service like Office 365, Box is pushing to tailer its offerings to individual industries. In October, it bought MedXT, a startup working to allow sharing of radiology and medical imaging with doctors and patients. Box is also working on other industry-specific software for retail, advertising and entertainment.

To move quickly and reach out to customers in these industries, Box has had to spend more on sales and marketing than it was bringing in in revenue. That meant burning through about $23 million a quarter, which meant tapping public and private markets quickly to finance the sales push.

So Box, as ugly as the financials look now, is also an bet that the company is sitting on the edge of a big shift in the way companies communicate internally and externally -from desktops to mobile, from LANs to the cloud – and can provide a platform that helps them do it privately and securely. That bet is expensive and risky, but the payoff is possible.

That first-day pop was meaningless, as they so often are. Box will need time to prove its mettle, but it may well do so. For now, the uncertainty surrounding its prospects is likely to bring its stock price lower over the coming months. But for investors who are inclined to believe Box can execute on its vision, a cheaper stock may make taking the risk more worthwhile.

Read next: Amazon’s Plan to Buy Old RadioShacks Is a Brilliant Master Stroke—If It Happens

Listen to the most important stories of the day.

TIME Companies

Apple, Facebook, Google and More: Get Ready for Earnings Season

Apple Unveils iPhone 6
Justin Sullivan—Getty Images Apple CEO Tim Cook shows off the new iPhone 6 and the Apple Watch during an Apple special event at the Flint Center for the Performing Arts on September 9, 2014 in Cupertino, California.

Intel beat expectations. What else does earnings season have in store?

So which will it be? Another banner year for tech stocks, or a period of disappointment? The next couple of weeks will provide investors plenty of clues.

Technology stocks in general enjoyed a good 2014, but the first couple of weeks of the new year have brought a sense of uncertainty. Now, as many companies in the sector gear up for the quarterly ritual of earnings announcements, investors will be scouring numbers for any signs to dispel uncertainty.

Analysts are expecting all earnings in the S&P 500 to rise a mere 1.1% in the quarter, according to Factset. For tech stocks, the growth will be slightly better: up 2.3%. Tech companies themselves aren’t feeling terribly confident: Of the 24 tech companies in the S&P 500 that have offered earnings guidance to investors, only four have given positive guidance, while 20 are taking a more cautious stance.

Factset was forecasting 4% growth in tech earnings and 8% growth for all S&P 500 sectors just a few months ago. But that was before oil prices started to plunge and the economic situation in Europe and Asia started looking as sketchy as it does now. That all adds up to uncertainty, and people tend to brace for bad news when they don’t know what to expect.

However, tech can be a safe haven in bad economic times, as it proved to be fairly resilient during the 2008-09 recession. And with investors’ expectations already lowered, strong earnings in tech could spark a more widespread rally.

The first tech giant to report was Intel. It’s an important company to watch because chipmakers’ orders rely on other tech companies’ plans for growth, making them industry bellwethers.

Intel was an under-performer for years while PC sales were in decline, but that market has finally stabilized after years in freefall. Accordingly, Intel handily beat expectations Thursday, posting Q4 2014 earnings of 74 cents per share, up 39% year-over-year, on $14.72 billion in revenue. Outside the consumer PC market, Intel has been making inroads on chips for mobile devices and sensors powering the Internet of Things, while the growth of cloud computing is creating more demand for its servers.

“The fourth quarter was a strong finish to a record year,” said Intel CEO Brian Krzanich in a statement. “We met or exceeded several important goals: reinvigorated the PC business, grew the Data Center business, established a footprint in tablets, and drove growth and innovation in new areas.”

However, Intel’s Q1 2015 guidance was lighter than expected, sending its stock down about 2% in after-hours trading. That post-earnings decline isn’t good news for other tech companies, because it suggests investors want more than just good news — they want the kind of great news that’ll spark a bigger rally.

The next notable tech names will report on Tuesday, when IBM and Netflix share their financials. This week, three analysts cut their earnings estimates and price target for IBM, following a report in the Register that said the enterprise IT giant is on the verge of its biggest restructuring ever.

Any news on a restructuring will reshape how investors assess IBM’s long-term prospects. But Big Blue’s earnings report may also offer insight on how demand and competition are faring in the enterprise tech market. If IBM’s challenges reflect an industry-wide slowdown, or if its results suffer significantly from the strength of the U.S. dollar, it could signal problems for other multinational enterprise tech stocks.

Meanwhile, Netflix’ earnings could add yet another volatile chapter in that company’s history. Netflix’s stock plummeted 25% last quarter on sluggish subscriber growth. Next week’s earnings could be just as tumultuous: One analyst said the stock could drop 15%, but urged investors to buy anyway because its international growth and original content are looking stronger than ever. To Netflix investors, such wild swings are nothing new.

Tech earnings will heat up in the final week of January when five of the most closely watched tech companies are all slated to report: Microsoft on Jan. 26, Apple on Jan. 27, Amazon and Facebook on Jan. 28, and Google on Jan. 29. Investors will scrutinize each company for different reasons, yet each will add up to a clearer picture of the health of the tech sector.

Some analysts have been increasing their estimates for Apple and Amazon. Not only is Apple valued attractively after several years as a lagging stock, iPhone sales were strong in the holiday quarter. One analyst says the company could vow to return $202 billion in dividends and buybacks in the next two years. Amazon, meanwhile, could pull back on spending, reversing its recent net losses.

For other tech giants, this quarter may show how they are maturing beyond their core markets: Google in search and Facebook in its mobile-feed ads. All are global companies, so the strong dollar could blunt any international growth. But all are consumer-focused, so they may benefit from the extra spending money consumers have left over from falling energy prices.

Public companies disdain the quarterly earnings process, with the open questionings and the swings in stock prices they can bring. But they also offer each other, their customers and shareholders insight into how the industry at large is faring. We got our first peak Thursday, but there’s plenty more to come.

TIME Social Media

For Twitter, Potential and Reality Are Increasingly at Odds

Twitter
Bethany Clarke—Getty Images The Twitter logo is displayed on a mobile device.

Here's why 2015 will be the most important year in Twitter's short history

Twitter has seen its stock rallying lately, but not for reasons the company would like. On Jan. 6, it shot up 7% on rumors activist Carl Icahn was buying a stake. Right before Christmas, it also rallied 4% on another rumor CEO Dick Costolo would step down.

Costolo has outlined a long-term vision for the company, but it’s the rumors of the plans others have for Twitter that moves its stock higher. That’s because there have been two Twitters for a while–the premier publishing platform the company could be and the one that always seems to be falling short of that potential.

There’s the influential company that breaks big stories, hosts large-scale debates and writes history in real time. And there’s the troubled company that can be found in Facebook’s shadow. There’s the stock that’s trading 40% above its offering price. And the stock that’s lost more than half its peak value.

There’s the startup that everyone doubted the first time they used it. And there’s the company that has become an addiction to many. There’s the social media site that has proven to be an indispensable platform for people in the media industry. And there is the social media site that draws naysaying predictions from people in the media industry.

There is the social network that some argued was unmonetizable, and the one that saw revenue double to $1.3 billion in 2014. There is the company that promises a decade of revenue growth, and the one that hasn’t shown an operating profit for years. There is the company that can boast 284 million monthly users and a half billion tweets a day. And the company with a measly 284 million monthly users, less than Instagram’s and a faction of Facebook’s.

But here’s the thing: As time goes on, the world has less room for two Twitters. It may well be that when 2015 comes to a close, there will only be one. The only question is which one will it be? Twitter the success story? Or Twitter the falling star?

There’s no question which Twitter Costolo wants to see survive. Over the past several months, Costolo has been working on a plan to boost user growth and engagement, convert logged-out readers into monetizable users, and insert more ads into Twitter feeds without driving away users.

The pressure to deliver on these goals is on. After the resignation rumors, critics emerged to call for his removal, including a Harvard professor who dismissed Costolo as “a consultant.” But Twitter has seen a lot of reshuffling in its executive ranks, and further instability in its leadership won’t help.

Besides, it’s not clear who would do a better job at growing Twitter right now than Costolo, who understands the devilish balance the company needs to maintain in order to keep growing without driving away its core users–a process that requires time. Facebook had nine years as a private company before facing the pressures to grow profits (and its first post-IPO year was a bummer). Twitter had only seven.

The tension that divides the two Twitters–grow users, but also grow revenue by showing them ads–is one familiar to social networks. Push too hard on one and the other vanishes. Facebook succeeded by building an inimitable place for friends to connect in non-public conversations. But Twitter isn’t Facebook. Like the “microblog” it started out as, it’s closer in spirit to Web 1.0 publishing–that is, a one-to-many format, only on a much richer, social venue.

The problem is, many people are reading tweets without setting up or logging into accounts. Twitter reckons this passive audience is 500 million large. Still more could be drawn in if a Twitter platform made tweets a part of other mobile apps. Costolo has plans to address these issues, by making it easier for passive users to build profiles and create instant timelines, and by rolling out Fabric, a Twitter platform that developers can easily drop into their apps.

Twitter is also vowing to boost the percent of ads in a Twitter feed from 1.3% of tweets to 5%, which itself could boost annual revenue to $5 billion. In my own feed, I’ve noticed ads are as high as 7%, or one in every 15 tweets, although none have shown up yet in apps like Tweetbot.

Twitter is quick to caution that such figures aren’t formal estimates but mere projections of a potential. And there’s that potential Twitter again, the one that never seems to show up in reality. Costolo has made a credible case for more time to let his plans push Twitter closer to that potential growth. Transitioning to a new leader, or merging Twitter with Yahoo or Google, would only delay a transition that is already short on time.

Moving too quickly to push ads onto Twitter could also drive away more active users. And that would cripple the best part of Twitter–the public forum where events like Ferguson protests unfold online, where debates flourish, where strangers discuss sporting or television events, and where celebrities, politicians and–yes–investors connect with the public. If Icahn does amass a large stake in Twitter, he will probably announce it on Twitter.

So 2015 is shaping up to be for Twitter what 2013 was for Facebook: a make-or-break year. Facebook managed to win over investors by delivering on its promise for growth. Twitter is reaching a similar crossroads this year, and how well Costolo delivers on his vision will likely determine which Twitter is with us come 2016.

TIME Companies

How BlackBerry Could Survive Another Year

BlackBerry
Bloomberg—Bloomberg via Getty Images The BlackBerry Ltd. Classic smartphone is displayed for a photograph during an event in New York, U.S., on Wednesday, Dec. 17, 2014.

BlackBerry's CEO is keeping investors from giving up entirely

John Chen isn’t a CEO plagued with doubt. That’s an essential quality for anyone who has taken on the formidable task of turning around around BlackBerry — but Chen also lacks the rose-colored optimism of some turnaround CEOs who, quarter after quarter, plead with investors for just a little more time.

Chen’s leadership more than anything is keeping investors from giving up on BlackBerry. When the company reported its latest quarterly earnings Friday, its stock fell 10% for an hour or two, but by the end of the day it was unchanged on the day. The stock has risen another 8% since then.

The initial selloff was triggered by revenue numbers well short of analysts’ expectations. Revenue from devices like the recently launched BlackBerry Passport fell 24% to $361 million. Even worse, revenue from mobile service subscriptions fell 42%, to $368 million. Software, seen as the company’s best hope for growth fell 4% to $54 million.

The stock didn’t begin its slow comeback until Chen took to the phone to discuss the company’s results. Chen said BlackBerry’s revenue figures were “not satisfying,” but he explained that the average selling price of $182 per device — well below expectations — was due to the company purging its inventory of older devices. The good news: BlackBerry’s cache of older models has fallen 93% in the past year.

BlackBerry sold 1.9 million devices in the quarter, shipping only 200,000 units of its new Passport. But a backlog of orders meant many Passports won’t be recognized as sales until this quarter. Chen also said that early orders for the BlackBerry Classic – with new technology stuffed into a familiar design – are already surpassing the Passport’s early demand.

BlackBerry’s decline in services revenue, however, is a long-term drain that the company has little chance of stopping. Carriers once paid BlackBerry to manage secure email and messaging, but now they can handle that themselves. So BlackBerry is now pushing software like BES12, a mobile platform aimed not at consumers but banks, healthcare companies and governments.

Many of those companies favor the mobile security that BlackBerry has long offered, something that may grow more attractive in the wake of several recent high-profile corporate hacks. Chen has said BlackBerry will double its software revenue, which currently stands at around $250 million annually, in the coming year.

Investors have had faith in BlackBerry even as they despaired over its future because Chen has been consistent with his bold predictions, rather than kicking the can of a promised turnaround down the road — a year ago, Chen said the company would be profitable by 2016.

Still, there’s a long way to go. By one measure, BlackBerry posted a profit of a penny per share last quarter. But by another count, BlackBerry saw a 28 cent loss. The company has to prove it can sustain any profit just by growing its revenue. One key measure suggests it might: the company turned its cash flow positive (meaning it’s generating money rather than burning through it) last quarter, one quarter earlier than it projected.

Those metrics are meaningful in that Chen’s restructuring of BlackBerry has been a two-part plan: Cut costs and eliminate older, unwanted businesses to become profitable and cash-flow positive. After that, Chen’s plan will be to drive revenue growth with new devices and software.

The last year has seen the first phase of that plan roll out quickly: BlackBerry cut its workforce by 40%, then told workers in August it was finished with layoffs. It outsourced manufacturing and refocused on the enterprise market. And its success in clearing inventory of old models means an increased average selling price in future quarters should increase profit margins.

Increasing revenue is going to be trickier. Chen’s predecessors found it much easier to cut costs than revive growth. Still, the Classic and Passport devices are designed to appeal to fans of BlackBerry’s iconic keyboard. And the BES12 platform has drawn partners like Samsung and Boeing, along with potential customers like Air Canada.

BlackBerry says it may take a few quarters for evidence of revenue growth to occur because of the way it accounts for device sales (it records revenue not when units are shipped to distributors but when users turn them on) and for software (which includes subscriptions and support spread over several quarters).

BlackBerry’s recent report did give bears plenty of fodder for gloomy predictions – revenue was down 34%, $125 million under the Street’s consensus forecast. But the company’s stock has shown an ability to recover quickly from such grim metrics. The bad news reflected BlackBerry’s past, but a better future still seems plausible. Gone are the days in which BlackBerry can beat Apple. But 2015 may be the year when BlackBerry shows reports of its demise were greatly exaggerated — and that alone would make for a remarkable achievement.

TIME Mobile

Here’s Why You’ll Pay Less for Your Wireless Plan Next Year

T-Mobile
David Becker—Getty Images T-Mobile President and CEO John Legere speaks at a news conference at the 2013 International CES at The Venetian on January 8, 2013 in Las Vegas, Nevada.

Carriers like Verizon, ATT&T and T-Mobile are fighting a price war that could last months. The longer it endures, the more choice consumers will have

This hasn’t exactly been a banner year for wireless carriers’ stocks. While the S&P 500 Index has risen 8% this year, AT&T and Verizon, which together control about 83% of the wireless market, are down 8%.

The two companies have fared especially poorly in the last month: AT&T is down 10% and Verizon is down 12%, while the S&P is down only 2%. The reason is one that may delight consumers and concern investors: A price war, in which rivals cut prices to steal market share from one another, has broken out among carriers, and it’s only likely to get more intense next year. The longer a price war endures, the more choice consumers will have, though it means financial pain for carriers.

Verizon issued a press release last week with a headline touting “strong wireless customer growth” this quarter, but contained less sunny news further down: the “impacts of its promotional offers . . . will put short-term pressure” on Verizon’s profit margins. When companies issue statements about earnings before they’re officially reported, there’s usually worrisome news tucked inside. The following day, Verizon CFO Francis Shammo offered more spin.

“What we’re seeing is a pretty exciting period here at Verizon Wireless,” he said at an investors’ conference, “where we saw an increase in the activations but we’re also seeing some increase in the churn as well.”

Churn, which measures customer attrition, is a scourge to companies that rely on subscribers because it can signify customer dissatisfaction or the impact of rivals’ lower prices. A recent survey by Consumer Reports suggests customer satisfaction is comparable among AT&T, Verizon and T-Mobile (not so much Sprint, which is having issues in upgrading its network). In previous surveys, Verizon had a clear lead and T-Mobile had lagged. That’s a sign Verizon owes its churn problem to competitors’ lower prices.

Still, Verizon’s Shammo argued that talk of a price war was overstated and that “the revenue of the industry . . . has come down slightly but not as much as everybody is making it out to be.” The market disagreed. Verizon’s stock fell 4% as Shammo made his comments. Two securities firms downgraded Verizon’s ratings, while two others lowered their price targets for the stock.

It didn’t help that at another investment conference that same day, AT&T CFO John Stephens was saying something similar in starker terms.

“The current impact — the current environment is impacting churn,” said Stephens. “In fact, we expect postpaid churn to be higher than it was in the year ago fourth quarter. This will impact fourth-quarter adjusted wireless margins.”

That’s especially good news for T-Mobile, which, under the banner of the “uncarrier,” has run promotions that remove two-year lock-ins and data caps and offer lower-price plans to steal customers away from its bigger rivals. AT&T and Verizon have responded with their own lower-priced plans, but the advantage seems to be going T-Mobile’s way.

Last week, T-Mobile CEO John Legere boasted to the Wall Street Journal that it’s taking in more customers than it’s losing, meaning it isn’t being hit by the same churn striking Verizon or AT&T. T-Mobile upped the ante yet again Tuesday with its eighth “uncarrier” promotion, which lets users roll over unused LTE data from one month into the next for free. Mobile carriers once offered similar roll-over offers for phone calls when it became clear that data networks were displacing voice calls, but until now data plans had no such perk.

None of this means T-Mobile and Sprint’s investors are necessarily any happier than those who own AT&T and Verizon stock. In fact, they’re probably less happy. T-Mobile’s stock is performing as badly as Verizon and AT&T’s this month, and year to date it’s down 26%. T-Mobile is pursuing subscriber growth and revenue with its low prices, but that strategy pushes down profits — the “uncarrier” has posted a loss for three of the last four quarters. Sprint’s stock is doing even worse: It’s down 62% so far this year.

From the looks of things, the carriers’ fierce competition may continue into 2015. This month, Sprint began offering to halve the monthly bills of AT&T and Verizon subscribers who switch to similar plans on Sprint. Not to be outdone, T-Mobile offered an unlimited data plan with two lines for $100 a month.

Verizon’s Shammo predicted the price war will pass in a matter of months. “I think that things will settle down in 2015,” he said at the UBS conference. “Some of this is just temporary promotion-type stuff to stimulate some growth . . . You can’t do that long term. You can do that for a quarter or two, but then you have to get realistic.”

There’s reason to think that may not happen. When price wars break out, investors often watch who is gaining market share and revenue. Right now, that’s T-Mobile, despite its struggling performance on Wall Street. Its CEO has taken on activist shareholders in the past and has the grit to do so again. As for Sprint, investors may come to see that fighting on price may be the best option as long as customer satisfaction remains low.

At the same time, niche carriers are beginning to win over some customers as well. In Consumer Reports’ recent ranking of carriers, the two clear winners were tiny ones: Consumer Cellular and Ting, both of which ranked high on value and network quality. Last quarter, according to Cowen & Co., smaller carriers like them made up 5.2% of the postpaid mobile market, up from 4.2% only a quarter before.

For subscribers weary of having only two comparably priced mobile carriers to choose from, price competition from smaller players is welcome, even if network quality has long been an issue. When industries go from being uncompetitive to more competitive, there is often a period of declining margins across the board as consumers are given a broader range of choices.

The current price wars are coming at a time when carriers need to bid on costly spectrum auctions and spend money upgrading their networks. That suggests a tough time ahead for wireless carriers and their investors in the short term. But if price competition becomes a long-term phenomenon, it could eventually bring big returns for whichever companies emerge as the victors.

TIME Electronic Arts

Why Electronic Arts Is Suddenly Roaring Back to Life

Visitors Attend The EXG Gaming Conference
Bloomberg—Bloomberg via Getty Images A visitor passes an advertisement for the Sony Corp. Playstation version of the FIFA 15 soccer game, produced by Electronic Arts Inc. (EA), during the EGX gaming conference at Earls Court in London, U.K., on Thursday, Sept. 25, 2014.

EA is in the game again

It’s been a rough six years for Electronic Arts, as the gaming giant has navigated it way through a rapidly changing world of games while facing a customer backlash, a disenchantment of developers in studios it acquired, and increasingly unhappy investors.

But if the mood of one group – EA shareholders – is any indication, the Redwood City, California company is on its way back. Electronic Arts’ stock rose as high as $46.23 Wednesday, its highest level since September 2008, before closing at $45.99. So far this year, EA has risen 100%, outpacing by a healthy margin rivals like Activision Blizzard (up 20%), Ubisoft (up 22%) and casual gaming company Zynga (down 33%).

That recovery has been a long time coming. EA lost its way nearly a decade ago as its push to wring profits from established franchises led to a stagnation in creativity and, ultimately, financial growth. In 2008, then-CEO John Riccitiello offered a mea culpa to a crowd of gaming developers, acknowledging that a strategy of buying gaming companies and forcing their developers to assimilate to EA’s culture wasn’t working. But despite pledges to change and a restructuring of the company aimed at fostering creativity, EA’s revenue stagnated while its stock price slumped.

Even worse, users began to revolt. For several years after Riccitiello vowed to improve EA’s games, complaints began to mount on the company’s forums. In 2012, Consumerist’s annual reader survey named EA the worst company in America. Complaints centered on high prices, rushed development of games, unreliable technology, and poor customer support. At the time, Electronic Arts brushed off Consumerist’s dubious title.

But when EA was voted the Worst Company in America for an unprecedented second time, its executives were put on notice. Meanwhile, stagnant sales pushed EA’s stock down below $11 a share in 2012 – what was then its lowest point – and in the spring of 2013 the company made another round of layoffs amid more restructuring.

EA seemed to have focused so strongly on running its businesses smoothly that it lost sight of what its gaming customers wanted. Like Hollywood studios, gaming companies are only as good as their most recent hits, and for years EA navigated the industry’s inherent volatility with skill. But gaming enthusiasts are different from film buffs – they are often more passionate, more vocal, and much better at making their complaints heard online.

In September 2013, EA named Andrew Wilson CEO, and quickly made clear it wanted to reform its image with customers. In interviews, Wilson has talked of instilling a “player-first” culture at EA, willing to delay a blockbuster title, for example, if it needs more work. In July, EA said it would push back the release of Battlefield Hardline until next year to ensure a stable launch.

Despite Wilson’s intentions, EA continued to suffer snafus in the new CEO’s first year. In late 2013, the company was hit by a shareholder lawsuit over the release of Battlefield 4, which disappointed in sales after a bug-ridden release (the delay in Hardline’s launch, following focus tests with gamers, is intended to avoid a similar fate) and lingering gripes over its use of in-app purchases in mobile games.

In 2014, things have changed — at least within the ranks of some EA investors, encouraged by the company’s strong performance throughout the year. In the six months leading up to Sept. 30, the company’s revenue rose 34% to $2.2 billion, while net income swung to a profit of $1.05 a share from a loss of 17 cents a share in the year earlier period. Again, video game earnings are notoriously volatile, but the numbers show that Wilson’s efforts are paying off — especially a plan to focus more of EA’s development talent on fewer of its games.

EA expects to release 10 titles for consoles and PCs this fiscal year, a third of the number it pumped out four years ago. Despite having fewer titles, EA’s revenue from Xbox and other console games more than doubled last quarter to $631 million. Mobile revenue, meanwhile, grew 69% to $123 million, or 12% of GAAP revenue. Two years ago, when Zynga was a hot stock, incumbents like EA looked vulnerable as mobile games threatened to sideline consoles. This year, EA is managing to grow console revenue while gaining a foothold in mobile games.

EA’s rally this year has left the stock expensive: It’s trading at 23 times its estimated earnings this year, above the average for S&P 500 shares. And the fickle nature of gaming consumers, along with the possibility of more delays in EA’s reduced lineup, could bring uncertainty to its future.

But for now, Wilson has steered the company on a path of stable growth. Barclays recently initiated coverage of the stock with a price target of $48 a share, 10% above its current price. On Wednesday, Piper Jaffray followed with a $47 target, citing the promise of future growth. As for whether Wilson’s efforts have swayed disgruntled customers, the clearest proof may be how it fares in voting for worst companies next year.

TIME Companies

How HP Could Once Again Dominate Silicon Valley

HP has shown it can innovate — but can those innovations save the company?

Throughout the 48-year history of Hewlett-Packard’s skunkworks division HP Labs, it has innovated many technologies that became commonplace: pocket calculators and laser printers, for instance. But for much of the past decade, the headlines about HP have centered on the Silicon Valley pioneer’s revolving door of CEOs, boardroom controversies and – more recently – its slow, painful turnaround.

CEO Meg Whitman has slashed 55,000 jobs in an ambitious restructuring. As the company prepares to split into two, the fruits of that effort are winning over investors who have pushed HP’s stock up 190% in the last two years — or nearly five times the Dow Jones’ rise. Throughout all of this, what HP hasn’t been portrayed as is what it was early on: an engine of innovation.

In recent months, however, new initiatives at HP have emerged to suggest that’s starting to change. In particular, HP has unveiled three innovations in printing, personal computing, and data analytics that each has the potential to influence or even reshape their respective markets. Even if that doesn’t happen, each one shows a new flair at HP to take bold new approaches in established markets.

Last month, HP announced its long-awaited entry into the 3D-printing market. While younger, smaller players like Stratasys and 3D Systems have dominated the nascent 3D-printing market early on, HP held back until it could deliver a breakthrough 3D-printing technology that could become the kind of industry standard HP has set in traditional printing. With its multi-jet fusion technology, HP seems poised to achieve just that.

Based on HP’s thermal inkjet technology – an area where HP is strong in expertise and intellectual property – multi-jet fusion promises 3D printers that offer higher resolution, lower cost and printing that the company says is 10 times faster than leading 3D printers on the market. HP’s first 3D printers will use thermoplastics, while in time HP hopes to employ metal, ceramics and other materials.

HP says it plans to make the new systems available starting next year to large and small manufacturers alike. That may seem like a late entry, but multiple analysts expect annual revenue in the 3D-printing market could rise north of $10 billion by 2020. HP says it expects its printers to be revolutionary, and some analysts agree. To persuade them, HP has a video showing how a chain link printed in less than half an hour can lift up a one-ton car.

Along with its 3D printing technology, HP also unveiled Sprout, a machine combining a PC, a projector and a 3D scanner. There’s nothing quite like Sprout on the market, and it’s hard to describe – it’s simpler just to watch a video of it – but basically the Sprout blends a tablet-like touchpad, a 14.6-megapixel camera, a projector and a scanner into a product HP calls immersive and intuitive.

Sprout is a risky product in that it sells for $1,900 at retailers like Best Buy, but it doesn’t have a pre-defined market. HP developed the idea out of an interest in bridging the physical and digital world, says spokesperson Elizabeth Pietrzak. “The target is more psychographic rather than demographic,” she says. Which means, basically, people who make things: designers, hard-core scrapbookers and school teachers, for instance.

Sprout is designed for creators who don’t have the training or the patience to use design software. HP is planning on building newer, specialized applications for markets like architectural design and health care, and it’s inviting developers to create still other applications for the platform, which HP built on Windows 8. Sprout may not end up being as disruptive as multi-jet fusion. But it shows HP is willing to innovate in areas where there is more potential than predictable outcomes – an approach that defines many startups.

Perhaps the most disruptive innovation HP is working on is something called the Machine. It’s a name at once understated and potentially pretentious, but what HP wants to do with the Machine is to create wholesale an entirely new computing architecture for the era of big data. As cloud computing and the Internet of Things demand systems that manage ever larger amounts of data, the drain on the electrical grid gets bigger.

HP’s answer is to create computing technology that can handle much more data using much less power. The Machine is being built with this goal in mind, and to reach it HP had to come up with multiple innovations: a software-defined server called Moonshot that uses 89% less energy and requires 80% less space; lasers a quarter the size of a human hair that use photonics instead of copper wires; and memristors that use ions to fuse memory and storage, making them faster and cheaper than DRAM or flash drives.

The Machine is the brainchild of HP Labs, which had earlier announced pieces of the plan, like Moonshot and memristors. In June, the company announced the Machine and discussed what may prove to be the hardest piece: an entirely new, open-source operating system. HP is also working on stripped-down versions of Linux and Android that could run the Machine on devices like smartphones.

HP expects products and services using the Machine to ship in four or five years. As with any ambitious project, the Machine faces uncertainty and questions. Will HP execute on the different pieces and integrate them into a seamless system? Will third parties embrace the Machine as a standard? Will other cash-rich tech giants build their own versions of the Machine first?

Whatever the answers to those questions, HP is showing that it’s pushing to return to its innovative roots. Earlier this month, venture capitalist Ben Horowitz talked about how big companies can innovate, arguing that the key is to have a secret insight that no one else understands, one that often comes from years of experience. HP has plenty of experience, much of it hard fought, and it’s boosted its R&D budget to 3.1% of revenue from 2.3% in 2010.

“Innovation has been a large part of our ethos over the years,” says HP’s Pietrzak. “Now we’re on a path where we can invest back in R&D.”

In Silicon Valley where young pups seem to rule, HP is an old dog, and one that has been through its share of scrapes in recent years. But it’s also showing that it can still learn some pretty intriguing tricks. And with any luck, those tricks could bring it to the forefront of tech innovation again.

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