Digital River Exceeds Estimate

Digital River, Inc. (DRIV - Analyst Report) recently reported third-quarter revenues of $99.4 million, up 3.2% from the year-ago level and surpassed management’s revenue guidance of $96.5 million – $98.5 million. The growth in revenues was driven by strength in software, consumer electronics and games markets where the company expanded existing client relationships and closed new business as well.

Earnings per share of 42 cents easily beat the Zacks Consensus Estimate of 33 cents and exceeded management’s forecast of 38 cents – 41 cents.

Earlier, prime customer Symantec announced that it would not renew its existing e-commerce agreement with Digital River beyond June 30, 2010, when its existing contract expires. However, management is encouraged by the future prospects of its existing business.

Going forward, management continues to work on its business plans in response to Symantec’s decision to not renew its e-commerce contract. The company stated that it does have complete visibility into Symantec’s transition plans and is still assessing the impact to its business.

For the fourth quarter, the company expects revenues between $94 million and $98 million. Revenues related to Symantec products is projected between $19 million and  $22 million. Excluding Symantec, revenue is estimated to come around $75 - $76 million, up 16 % - 18%. Earnings per Share are expected between 30 cents and 34 cents.
 
For the full year, the company expects revenues between $393 million and $397 million. Earnings per share is expected between $1.69 and $1.73.

It remains to be seen how the company carves its growth part sans Symantec, which has been contributing more than 30% to the top-line (directly or indirectly). Symantec earlier 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.

DRIV is currently diversifying its software business into complementary markets, which include consumer electronics and games. DRIV also plans to invest in new technologies to unlock opportunities in horizontal markets such as subscriptions and business-to-business software market.

However, we would like to be on sideline before the picture becomes clearer and the company finds out sources to compensate for the loss of Symantec.
 
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.