Digital River Loses Top Customer

Earlier today, Digital River Inc. (DRIV - Snapshot Report) announced that its largest customer, Symantec Corporation (SYMC - Analyst Report), notified the company that it will not extend its existing e-commerce agreement. The agreement, under which Digital River provides a variety of e-commerce-related services to Symantec, expires on June 30, 2010.

This is a stunning blow to Digital River as sales of products for Symantec accounted for 24.3% of its total revenues, and sales derived from proprietary Digital River services sold to Symantec consumers accounted for 9.4% of revenues in 2008. For the quarter ended June 30, 2008, sales of Symantec products accounted for 22.5% of revenue and related services revenues accounted for 7.5% of revenue.

Symantec informed Digital River that it expects to move all of the online traffic currently outsourced to Digital River to an internally developed Symantec e-commerce system before the current contract expires. Symantec has not yet informed Digital River regarding the timing of its migration plans or the nature of the support it will require from Digital River during the transition period.

Meanwhile, Digital River also announced that it expects financial results for the September quarter to meet or slightly exceed the upper end of the previously provided guidance. The company had earlier stated revenues should come between $96.5 million - $98.5 million in the third quarter and EPS between 38 - 41 cents. Management also stated that revenue from its non-Symantec business will grow at 8% on a sequential basis compared to approximately 2% sequential growth during the second quarter 2009.

Although management remains confident in its non-Symantec business and pipeline, it will be difficult to find a substitute for its largest customer. The top-line will be significantly impacted. The company is scheduled to hold a conference call later in the day to throw more light on this news. The shares of Digital River has already plunged 32% with this announcement.

Headquartered in Minneapolis, MN, 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.

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