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NextCard Quietly Builds A Business

Being first to market with a product or service known as "first-mover" advantage -- is often seen as a critical step for Internet companies hoping to dominate their respective sectors.

However, if barriers to entry are low, "first-mover" advantage doesn't help much if a well-heeled competitor targets superior resources toward your customer base.

That has always been the threat hanging over online credit card processor NextCard , which was the first to offer online customers instant approval for Visa cards. (The company boasts that the process takes less than a minute; I tried it last year, and found it was absolutely true.) NextCard also lets customers review their balances and pay their bills online.

Great services all, but seemingly easily duplicable by any number of major banks. Thus, since its debut in December 1997, it has always appeared to be a matter of time before NextCard, with a current market cap in the neighborhood of a half-billion dollars, would be either bought out or wiped out by one of the financial world's 800-pound gorillas.

Yet in the shadow of this ever-present threat, NextCard has managed to sustain strong revenue growth, reduce losses and cut deals with other Internet players to broaden its customer base even more.

Starting this week, NextCard can begin to cash in on its biggest partnership yet, a five-year pact with online retail leader Amazon.com to promote a co-branded card, the Amazon.com NextCard Visa. Any of Amazon.com's more than 13 million customers can now apply for the card from the e-tailer's Web site.

Announced last November (see column), the co-branding effort should further boost the number of customers receiving credit accounts through NextCard. In Q1 alone, the number of customer accounts increased to 337,000 from 220,000 through last year.

Translated into dollars, NXCD's operating revenue for Q1 was $13.9 million, a 74 percent increase over Q4's $8 million in revenue. Net loss grew to $24.8 million from $22.8 million, though on a per share basis the net loss fell to 43 cents from 50 cents.

Despite its solid quarterly report (released April 19) and a subsequent plug from a Banc of America analyst, NextCard shares continued a slide that began in early February, when NXCD was trading in the mid-30s. The stock hit an all-time low closing price of 7 = on May 10, but has since rebounded and was trading Wednesday afternoon at 11 11/6.

So is NextCard a bargain? Well, right now it's trading at 20.4x trailing 12 months' revenue of $26.5 million, compared to 185x TTM revenues last November, and is not about to run out of cash in the near future. Throw in the Amazon.com deal, which should accelerate revenue growth, and I believe this is a stock worth looking into.