RealTime IT News

NextCard Banking on Amazon.com Deal

Most reports about the deal announced Wednesday between Amazon.com (AMZN) and NextCard (NXCD) to market a co-branded credit card have focused on its benefits to the online retail giant.

Granted, the five-year agreement represents a bold move by Amazon.com to allow other companies to "monetize" its 13 million customers. And the $150 million in fees expected to be generated for the e-tail leader represents a nice little revenue stream.

But the partnership, due to begin early next, also should dramatically boost NextCard's already rapidly increasing revenue, which will help the online provider of Visa cards grow more quickly into its market valuation.

The short-term effect of the pact, however, has been to make NextCard even more overvalued relative to revenue. After closing Tuesday at 31 5/8, NXCD shares opened at 39 = Wednesday and reached an all-time high of 53 1/8 before falling back to 48 by 1 p.m.

At the latest price, the San Francisco-based consumer credit provider has a market capitalization of $2.05 billion. That's 185x trailing 12 months' revenue of $11.1 million. However, 94 percent of that revenue $9.9 million has come in the last two quarters. Further, NextCard has more than doubled sales in succeeding quarters three straight times.

It's not inconceivable, then, that NextCard could have $22 million in revenue this year, which translates into a company valued at 93x estimated '99 revenue. Pretty expensive, I'd say.

The stock was a much better bargain in August and September. After its May 14 IPO -- in which the company offered 6 million shares at $20 each -- NXCD traded in the $30s for most of the spring and early summer.

It plummeted in early August, hitting a low of 19 1/8 on Aug. 10 and spending most of the next three months trading in the mid-$20s. Since Monday's close of 25 =, NextCard's stock has nearly doubled.

The company is well-positioned in the nascent online credit card market and now has a major partner in Amazon.com, which also obtained a warrant to purchase up to about 10 percent of NextCard's stock. Still, it will be hard for a company as small as NextCard, which had 135,000 cardholders through Sept. 30, to maintain its present altitude.

NOTE: I'll be appearing Thursday at 9 p.m. on TradersRadio.com, an Internet radio program focusing in investing. Show host Michael Mermer and I will be discussing the latest trends among Internet stocks as well as what the next millennium might bring. The show can be found at tradersradio.com.

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