Digital River Launches New Product

Digital River Inc. (DRIV - Analyst Report) recently launched a new product named Software Network Agent. This new tool enables software publishers to partner with Original Equipment Manufacturers (OEMs) and computer manufacturers to deliver software trials and downloads through a customized portal on a PC desktop. The portal can be launched in 40 languages and consumers can enjoy a unique online buying experience with access to software content and other merchandise right from an online store on their PC desktops.

Headquartered in Minneapolis, Minnesota, Digital River provides e-commerce solutions for software publishers and retailers worldwide. The company delivers software and other digital goods online to over 40,000 customers.

Digital River is an example of an emerging trend known as “Software as a Service”.  The Software Network Agent is one of the newest solutions to be added to Digital River’s e-marketing services. It is less expensive for software vendors to use digital delivery because there is no physical distribution and there is no need to share profits with middlemen.  In addition, the growing adoption of broadband makes it much faster and more convenient for consumers to purchase digital products online.

Also, as more and more vendors of digital goods choose the Internet as a sales and distribution channel, Digital River collects valuable information on the purchasing behavior of these vendors. The company has been using this information to sell direct marketing services to a host of clients. The company is currently diversifying its software business into complementary markets, which include consumer electronics and games. Digital River also plans to invest in new technologies to unlock opportunities in horizontal markets such as subscriptions and business-to-business software market.

The company earlier reported in-line results for the second quarter. Management was cautiously optimistic for the remainder of 2009 and was encouraged by the growth in the sales pipeline, new product roadmap and recent wins in the business-to-business software market.

Digital River has a strong balance sheet with net cash of $350 million, which may allow the company to pursue selective and accretive acquisition targets along with stock repurchases. However, we expect margins to remain under pressure due to the initial ramp up of new consumer electronic and business-to-business software customers.

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