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 to promote a
co-branded card, the NextCard Visa. Any of’s more than
13 million customers can now apply for the card from the e-tailer’s Web

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

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 deal, which should accelerate revenue growth, and I believe
this is a stock worth looking into.

News Around the Web