Case 1.6 Nextcard, Inc.
Case 1.6 Nextcard, Inc.CASE 1.6 NEXTCARD, INC.
Jeremy Lent, a chief financial officer (CFO) with Providian Financial Corporation decided to apply the marketing tactics used by Providian to establish an internet based company to offer Internet users a faster way to obtain credit cards. Lent hired dozens of marketing researchers to analyze the “surfing habits of Internet users. With this information the marketing team developed an Internet-based advertising campaign to target internet users that frequently used their credit cards and maintained large balances due to purchases made over the internet. NextCard advertised to new customers if they applied on line a response would be received within 30 seconds. Lents business model was a success and by 2000 and had more daily hits than any other credit card issuer. Other well established credit card affiliates referred potential clients to NextCard.
NextCard had extended more than $1 billion of credit to internet customers but unfortunately profits were not immediate which the executives ignored to disclose in any press releases. A NextCard executive boasted in February of 2000 that the “company continues to beat our aggressive growth targets while maintaining very strong parameters and core elements of our business model” (Knapp, p 6). In 1999 the company produced a large loss of about $77.2 million. NextCard was able to take the company public with stock price initialing selling for $20 per share regardless of large losses for each reporting period. The stock prices soared to $40 per share making Lent and his executive multimillionaires. The Stock rose again past $50 per share several month later and once the Securities Exchange Commission (SEC) “lock-up” period expired Lent and colleagues sold chunks of their interests in the company.
In 2000 NextCard report a loss of $81.9 million more than previous year. The Wall Street analysts questioned the continuous losses but were told by the executives that a profit would be reported...