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.

MONEY Food & Drink

Why Shake Shack’s IPO Is Too Rich for My Blood

Shake Shack founder Danny Meyer (3rd R) and Shake Shack CEO Randy Garutti (2nd R) ring the opening bell at the New York Stock Exchange to celebrate their company's IPO January 30, 2015. Shares of gourmet hamburger chain Shake Shack Inc soared 150 percent in their first few minutes of trading on Friday, valuing the company that grew out of a hotdog cart in New York's Madison Square Park at nearly $2 billion.
Brendan McDermid—Reuters Shake Shack founder Danny Meyer CEO Randy Garutti ring the opening bell at the New York Stock Exchange.

I used to think Shake Shack might be undervalued. Not anymore.

Last week, I wrote a positive article on burger chain Shake Shack’s SHAKE SHACK INC SHAK -0.8% IPO on the basis that, “in [the indicative $14 to $16] price range, the shares could significantly undervalue Shake Shack’s growth potential.” The shares began trading today, and I’m much less excited about the offering. In fact, I think investors ought to avoid the stock entirely. What’s changed?

Is no price too high?

It’s not unreasonable to think a stock that is attractive at $15 may well be repulsive at more than three times that price — which is where Shake Shack shares are now trading. (The stock was at $48.62 at 12:30 p.m. EST.) Indeed, the underwriters raised the price range to $17 to $19 — and the number of shares being sold — before finally pricing the shares at $21.

Apparently, that did nothing to deter investors once shares began trading in the second market this morning – they opened at $47, for a 124% pop! Despite solid or even outstanding fundamentals, a business will not support any valuation. Price matters.

Last week, I compared Shake Shack to Chipotle Mexican Grill CHIPOTLE MEXICAN GRILL INC. CMG -0.79% . Let’s see how the share valuations of the two companies on their first day of trading now compare:

Number of restaurants operated by the company at the time of the public offering Price / TTM Sales
(based on closing price on first day of trading)*
Chipotle 453 4.4
Shake Shack 26 16.1

*Shake Shack’s price-to-sales multiple is based on the $48.62 price at 12:30 p.m. EST. Source: Company documents.

That’s a huge gap between the two price-to-sales multiples! Given the massive appreciation in Chipotle’s stock price since the close of its first day of trading — a more than fifteenfold increase in just more than nine years! — there’s a good argument to be made that the shares were undervalued at that time.

However, had Chipotle closed at $160 instead of $44 on its first day of trading — which would equalize the price-to-sales multiples — subsequent gains would have been significantly less impressive.

Buy potential performance at a discount, not a premium

Furthermore, with Chipotle, we are looking back at performance that has already been achieved, both in terms of the stock and the company’s operations. The Mexican chain has executed superbly well during that period.

With regard to Shake Shack — however likely you think a similar business performance is — it remains in the realm of possibility instead of certainty. I don’t know about you, but when I buy possibility, I like to buy it at a discount to the price of certainty.

Although I think Shake Shack’s brand positioning is comparable, and possibly even superior, to that of Chipotle, I’m not convinced the business fundamentals are as attractive.

For one thing, Shake Shack faces stiffer competition in its segment than Chipotle did (or does) in the likes of Five Guys and In-N-Out Burger. For another, Shake Shack’s same-store sales growth is significantly lower than Chipotle’s was, at just 3% for the 39 weeks ended Sep. 24 versus 10.2% for Chipotle in 2005, which was followed by 13.7% in 2006.

Don’t swallow these shares

Shake Shack may produce a premium burger — founder Danny Meyer refers to this segment as “fine casual dining” — but the stock is currently selling at a super-premium price. Paying that price is the equivalent of eating “empty calories” — it could end up being detrimental to your financial health.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 

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MONEY Food & Drink

Shake Shack Sets $21 IPO Price

So much for the initial estimates. Shake Shack’s IPO will take a few more dollars a share if you want to get in early.

MONEY

Shake Shack IPO Reveals Two Burgers, Two Americas

Passersby walk in front of the Shake Shack restaurant in the Manhattan borough of New York. Burger chain Shake Shack Inc, which grew out of a hot dog stand in New York's Madison Square Park, has filed for an initial public offering.
Keith Bedford—Reuters Passersby walk in front of the Shake Shack restaurant in the Manhattan borough of New York. Burger chain Shake Shack Inc, which grew out of a hot dog stand in New York's Madison Square Park, has filed for an initial public offering.

Could the burgers really be that much better? Shake Shack's remarkable IPO contrasts with McDonald's sagging fortunes.

We’ve gotten used to hearing we’re living in two America’s, separated by our economic fortunes, our politics…and now maybe even our hamburgers.

An exaggeration? Maybe, but look at how two of America’s favorite hamburger joints, the hip, coastal Shake Shack and old standby McDonald’s, have fared over the past week.

On Thursday, Shake Shack SHAKE SHACK INC SHAK -0.8% , founded by fancy New York chef Danny Meyer in 2004, pulled off an initial public offering that seems worth of a tech start-up. Shares, initially priced at $21, shot up to nearly $50 on Friday morning.

While Shake Shack isn’t above standbys like cheese fries, its menu which also features beer, wine and a popular portobello mushroom burger. In short, it’s not much of a stretch to say it targets what some call “coastal elites.”

In fact, just look at the map: Of 36 U.S. locations, just one is in the Midwest. And so far, the hamburger chain has chosen to open in money centers like London and United Arab Emirates before venturing into heartland spots like St. Louis or Kansas City.

ShakeShack

 

Shake Shack’s remarkable success contrasts with a tough week for McDonald’s MCDONALD'S CORP. MCD -0.61% . You don’t have to travel the Acela corridor to reach one of McDonald’s 36,000 worldwide locations, as this very cool map by data visualization artist Stephen Von Worley shows.

McDonaldsAcrossAmerica

 

But Americans seem to be losing interest in populist fare like Happy Meals and Chicken McNuggets. Perhaps more important, the company can’t seem to persuade its cash-strapped customers to splurge on items other than its popular Dollar Menu, making it hard to turn a profit.

With U.S. wage growth for many middle-class Americans still stalled seven years after the financial crisis, it’s not hard to see why. With sales down five straight quarters and the stock priced stalled, Chief Executive Don Thompson announced Wednesday he would step down in March.

MONEY stocks

3 Companies That May Not Last Through 2015

RadioShack consumers electronics store, Falls Church, Virginia.
Saul Loeb—AFP/Getty Images RadioShack consumers electronics store, Falls Church, Virginia.

Watch these companies closely this year.

For more than six years now, the stock market has defied naysayers in a bull-market run that has pushed major-market benchmarks to record levels. Yet no matter how strong the stock market is, you can always find pockets of weakness among certain companies that simply haven’t lived up to expectations. Indeed, in extreme cases, some companies find that it no longer makes sense to stay in business, either breaking themselves up in major asset sales or declaring bankruptcy. The result is often a plunging stock price that leaves shareholders with major losses.

To help you identify some potential danger areas, three Motley Fool contributors picked companies that they believe might not live to see the end of 2015. Their views certainly aren’t a guarantee of failure for these stocks, but they nevertheless believe that you should watch these companies closely before you put your investing dollars at risk.

Jeremy Bowman (Radio Shack)

Radio Shack has been a fixture in electronics retail for over a generation with over 4,000 stores nationwide, but this year could be its last. A combination of declining sales, steep losses, and pressure from its creditors may force it into bankruptcy and liquidation.

The company still brings in substantial sales at more than $3 billion over the last twelve months, but its share price has fallen all the way to $0.39 as of Monday’s close, valuing the company at $39 million, or slightly more than a penny for every dollar in sales.

Radio Shack was already in trouble this time last year with same-store sales falling by double digits, but the company’s hopes for a turnaround took a sudden turn for the worse when creditors rejected a plan to close 1,100 stores last spring, claiming that doing so would violate debt covenants. Since then, cash has evaporated, and the Shack was left with just $62 million in liquidity as of its third quarter earnings report when it turned in an operating loss of $114 million.

Since then, Radio Shack has resorted to what seem to be desperate moves, suspending employee 401(k) contributions and, in December, bringing in its third CFO in just four months. Its marketing chief also quit in December, during the crucial holiday selling season, a further sign that the company’s demise could come even sooner than expected.

The retailer’s moment of truth should come this Thursday, when the deadline it has with lender Standard General arrives. Radio Shack must prove it has $100 million in liquidity in order to implement a financing package with Standard General agreed on in October. If Radio Shack is unable to secure additional funding, the company’s prospects look essentially dead. Moreover, even if it shows up with the $100 million, that’s no guarantee it will remain viable through the end of the year.

Bob Ciura (Aeropostale)

Aeropostale AEROPOSTALE ARO 3.07% might not make it out of 2015 alive, even though shares of the teen retailer jumped more than 20% on January 8 after better-than-expected holiday sales. Aeropostale said comparable holiday sales fell 9%, better than last year’s 15% decline. But the results still signify this is a company in severe decline. Shares of Aeropostale lost nearly three-quarters of their value last year due to collapsing sales, and management’s plan to turn the company around mostly involves shuttering stores. The company plans to close as many as 240 Aeropostale stores and all of its P.S. children’s concept. Not only are total sales falling, but sales per square foot are falling as well, which means store closings are not likely to restore growth

Aeropostale announced a smaller-than-expected loss for the fourth quarter. Management expects the company will lose $18 million-$23 million in the quarter, down from a prior forecast of $28 million-$34 million. Still, this hardly seems reason to celebrate. Over the past three quarters, Aeropostale lost nearly $200 million, approximately double the loss from the same period one year ago.

The teen fashion landscape changes very quickly, and companies that fall out of favor find it hard to catch up. While Aeropostale suffers the effects, investors shouldn’t touch this company that might not survive through 2015

Dan Caplinger (Sears Holdings)

One of the most often-chosen stocks for a potential implosion is retailer Sears Holdings SEARS HOLDINGS CORP. SHLD 4.3% , which has struggled for years to navigate difficult conditions in its niche of the big-box retail segment. The company is on pace to lose money for the fourth year in a row, and restructuring charges and asset sales that for most companies are extraordinary events have become commonplace for the operator of Sears and KMart stores.

Sears is infamous for its long string of spinoffs, with last year’s Lands’ End LANDS END INC COM USD0.01 LE 0.25% IPO having been one of the more successful of its former parent’s corporate moves. Many believe that CEO Eddie Lampert’s primary strategy has been to unlock the value of Sears Holdings’ assets through such moves, with the eventual goal of leaving the money-losing retail business as a used-up husk. Yet many have been surprised at just how long Sears has managed to stay in business, and a recent hacker-attack against the company’s KMart division was just another problem that the company will have to face in trying to attract shoppers.

It’s entirely possible that Sears Holdings shareholders could receive further valuable distributions on their stock through spinoffs or other corporate moves. Yet the odds of Sears Holdings continuing in anything like its current form grow smaller every day.

TIME Retail

Online Marketplace Etsy Is Going Public

Etsy signage at the Brooklyn Beta conference in Brooklyn, N.Y. on Oct. 12, 2012.
Bloomberg—Getty Images Etsy signage at the Brooklyn Beta conference in Brooklyn, N.Y. on Oct. 12, 2012.

Etsy could bring a little bit of Brooklyn hipster to the public market this year

Etsy, the online seller of handmade crafts and vintage goods, is planning to go public as soon as this quarter with plans to raise $300 million, sources told Bloomberg News.

If the Brooklyn-based site rakes in that amount of cash, it would be the biggest New York tech IPO since 1999. The last time a New York-based tech company garnered that kind of a valuation was the dot-com boom when high valuations benefited listings from TD Waterhouse Group and Barnesandnoble.com, the e-commerce spinoff of the bookstore chain.

Etsy was started by painter and carpenter Rob Kalin in 2005. The multi-talented artist was looking for a way to sell his hand-built goods and started the online exchange. The company now has nearly 26 million items listed on its site–anything from vintage champagne coups to handmade dog collars.

Etsy, which has been valued at more than $1 billion, brings in its profits by charging sellers 20 cents to list products and then takes another 3.5% commission from each item sold. It also generates revenue from advertising and payment procession. In 2013, the site reported $1.35 billion in gross merchandise sales, according to its website.

Goldman Sachs and Morgan Stanley are working with Etsy on its IPO, and the company is likely to file a prospectus this month with more financial details, sources told Bloomberg.

An Etsy spokeswoman declined to comment.

This article originally appeared on Fortune.com.

Read next: We Just Learned a Little More About the Apple Watch

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TIME Companies

Cloud Storage Company Box Is Almost Ready to Go Public

Company could be valued at close to $1.6 billion

Cloud storage service Box is almost ready to go to the market.

The tech startup filed an amended IPO Friday pricing its shares between $11 and $13. At the high end, the IPO would raise as much as $187 million for the company and value Box at nearly $1.6 billion.

Box had originally filed for an IPO in March 2014 but shelved plans for going public last year amidst an overall downturn in tech stocks. The company is not yet profitable, having lost $121 million in the first nine months of 2014 and $125 million in the first nine months of 2013. Revenue for those periods was $154 million and $85 million, respectively.

Box is facing pressure from several much larger competitors, including Dropbox, Google and Microsoft, who have all spent the last year or so offering increasing amounts of cloud storage for lower prices.

MONEY Food & Drink

What You Should Know About the Shake Shack IPO

Shake Shack in Madison Square Park in New York City.
Andrew Burton—Getty Images

Should you get in on a hot new restaurant IPO that's almost guaranteed to generate double-digit revenue growth for years to come? It's tempting in theory, but no-brainer IPOs don't always pay off.

Last week, Shake Shack, a popular New York City-based burger joint, announced that it has decided to go public. If the reception to the news on Twitter and throughout the financial media is any indication, it will be a highly coveted affair.

Founded in 2001 as a hot-dog cart in New York’s Madison Square Park, the concept has expanded to 63 physical locations, 32 of which are licensed to domestic and international operators. Meanwhile, its systemwide sales have gone from $21 million in 2010 to $140 million in 2013.

It goes without saying that there is phenomenal potential for a company like this. Yet determining whether such potential will translate into outsized returns for early investors is far from obvious.

According to Benjamin Graham, the father of value investing and author of The Intelligent Investor, the answer is generally no:

Our one recommendation is that all investors should be wary of new issues — which means, simply, that these should be subjected to careful examination and unusually severe tests before they are purchased.

The data on IPOs

While the data on the performance of IPOs isn’t conclusive, it tends to support Graham’s warning. Over the past five years, for instance, a composite of IPOs compiled by Renaissance Capital has returned a total of 124%, compared with the S&P 500’s 132%.

And data curated by Professor Jay Ritter at the University of Florida leads to the same conclusion. Between 1970 and 2012, Ritter found that IPOs underperformed similarly sized publicly traded companies in the first, second, third, and fifth years after listing. The only outlier, for reasons not immediately apparent, was the fourth year, in which the cumulative return of newly listed companies exceeded that of their similarly sized competitors by 1.8%.

This isn’t to say that the data speaks unanimously against IPOs, as there is conflicting evidence that suggests the opposite. Most notably, an IPO index designed by First Trust, a money management firm headquartered near Chicago, has returned a total of 150% since 2006 versus the S&P 500’s total return of 92%.

And, of course, it’s hard to ignore the companies that have gone public and seen their shares soar. Digital-camera maker GoPro, which listed in the middle of last year amid its own flurry of media attention and excitement, serves as a case in point. Since opening at $28.65 a share on June 26, its stock has more than doubled in price and currently trades for more than $65 a share.

The issue with IPOs, in turn, isn’t that none of them pay off. As GoPro and others have demonstrated, some do. The issue instead is that they aren’t designed to do so — or, at least, not for the individual investor.

IPOs and the lemon problem

In the first case, you have the so-called lemon problem. When a company goes public, the people selling their shares know a lot more about it than you do. It’s akin to buying a used car, where the seller has intimate knowledge about the vehicle’s infirmities while the buyer must decide after only a brief test drive and cursory inspection.

Fueling this situation is the fact that many companies going public nowadays were previously controlled by private equity firms. That matters, because the fundamental business model of such firms is to extract the value from a company before unloading its shares onto the public markets.

Caesars Entertainment CAESARS ENTERT CP COM USD0.01 CZR -1.76% is a textbook example. When the casino giant was taken public by its private equity handlers in 2012, it was laden down with $20 billion in debt. After subtracting intangible assets, Caesars was left with a tangible book value of negative $7 billion.

Fast-forward to today, and Caesars’ interest payments have become unsustainable. In the first nine months of last year, servicing its debt consumed nearly half of the casino’s total gambling revenues, leading to a $2.1 billion loss from continuing operations. Thus, it’s no coincidence that Caesars is on the verge of putting its largest operating unit into bankruptcy as soon as this month.

Stacking the deck against individual investors

But even if the lemon problem wasn’t an issue, individual investors would still be at a disadvantage when it comes to IPOs: Investment banks, which shepherd companies through the process, have a vested interest in maximizing the price of a company’s newly issued shares, regardless of value.

Taking companies public is a lucrative and competitive business on Wall Street. And while investment banks wouldn’t admit to it, one way they compete against each other for that business is by proffering the services of their research analysts — that is, the people who are tasked with educating investors about the value of publicly traded companies.

A recent enforcement action by the Financial Industry Regulatory Authority gave a rare insight into that process for investors. At the beginning of last month, FINRA fined 10 banks between $2.5 million and $5 million each for “allowing their equity research analysts to solicit investment banking business and for offering favorable research coverage in connection with the 2010 planned initial public offering of Toys “R” Us”.

In effect, the investment banks told Toys “R” Us and its private-equity owners that, if awarded the business, their research analysts would publish favorable reports about the retailer’s value to sway investors and, by doing so, potentially inflate its stock price. It was the same thing many of the same firms did around the turn of the century, when their analysts pumped degenerate Internet stocks such as Pets.com and Webvan.com.

The net result is that it’s difficult for an individual investor to get an objective assessment of the value of a newly listed company. And it’s for this reason that investing in them calls for, in Graham’s words, a “special degree of sales resistance.”

The unfavorable timing of IPOs

Finally, I would be remiss if I didn’t at least touch on the issue of timing. It’s common sense that companies prefer to go public when stock valuations are high, as opposed to when they’re low. By doing so, the sellers are more likely to get a price that’s favorable to them and, concomitantly, less favorable to individual investors.

The data bears out that reality. In the lofty market of 2005 to 2007, an average of 200 companies went public each year. The number fell to only 31 after stocks plunged in 2008. Since then, the annual IPO volume has steadily increased with the market, topping out for the moment in 2014 as stocks soared to unprecedented heights.

In sum, when you add timing to the lemon problem as well as the conflict-of-interest issue that leads investment banks to inflate the value of newly issued stocks, it should be obvious that investing in this area is, to put it mildly, fraught with peril for the individual investor.

Getting back to Shake Shack

Of course, none of this guarantees that Shake Shack’s IPO will yield substandard returns for the early investor — relative to the broader market, that is. I’ve read more than one compelling analysis of its prospects. It’s a great business. It’s run by a restaurateur with impeccable credentials. Customers love it. And all of these things come through in the burger joint’s growth trajectory.

But at the end of the day, prospective early investors in Shake Shack would be smart to go into it with their eyes wide open. While it could be, and hopefully is, an outright bonanza for anyone who buys in, such an outcome would be in spite of the IPO process and not because of it.

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 Markets

IPOs Raise $249 Billion in 2014 Amid Funding Frenzy

Dow Rises Over 400 Points Day After Fed Signals No Rise In Interest Rates
Andrew Burton—Getty Images A trader works on the floor of the New York Stock Exchange in New York City during the afternoon of Dec. 18, 2014.

Last year was a busy one for public offerings, even without Alibaba’s record-breaking listing

A company looking to raise money in 2014 didn’t have to look too far. Last year was the busiest for initial public offerings since 2010.

From Alibaba Group’s $25 billion IPO to much-hyped smaller listings, such as GoPro and Ally Financial, companies listing on the stock markets raised $249 billion worldwide, according to data collected by Thompson Reuters. Even without Alibaba’s record-breaking offering, last year was a standout period for IPOs.

IPOs picked up pace from 2013: about 40% more companies listed on public markets in 2014 compared to the year prior. They also raised more money. Leaving out Alibaba’s offering, which many agree is a once-in-a-generation kind of IPO, companies raised almost 36% more money year-over-year, according to the New York Times.

The booming market has led some analysts to speculate that it is inflated past realistic valuations, pumped up by overly optimistic investors. For instance, Lending Club’s December IPO valued the online lender at 35 times estimated revenue for 2017, which would put it on par with tech companies such as Facebook.

The public markets weren’t the only place to raise big bucks. The private market also saw big number sums, including Uber’s $1.8 billion fundraising round that valued it at $40 billion. Chinese smart phone maker Xiaomi and online home rental service Airbnb also raised huge sums that valued the startups at $10 billion or more.

Fundraising in both the public and private markets have been driven by a confluence of factors, including low interest rates that have pushed investors toward higher-growth opportunities and a skyrocketing stock market.

While no mega-IPO like Alibaba is set for the year ahead, there are some big-name companies that are scheduled to go public, including file-sharing startup Box and “fine casual” dining chain Shake Shack.

Other potential IPOs remain the subject of much speculation. Investors are watching startups such as Uber, Pinterest and Fitbit carefully, though none have yet indicated when or if they will list on public markets.

This article originally appeared on Fortune.com

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