Digital River Earnings Warning: Not All e-Commerce Made the Same (DRIV)

Today, Digital River (DRIV-NASDAQ) is lowering quarterly revenue guidance to $78 million, down from $85 million it had previously guided.  It also lowered non-GAAP EPS $0.38 to $0.39 EPS versus $0.46 given as prior guidance.  ADDITIONAL ANNUAL LOWERED GUIDANCE: Revenue of approximately $345 million; compared to prior guidance of $380 million and Non-GAAP EPS $1.85 to $1.89, compared to prior guidance of $2.14.
 
Joel Ronning, Digital River’s CEO: "Several factors contributed to what historically has been a seasonally soft quarter for the Company.  Some of the incremental business we were expecting from several key clients continued to unfold slower than anticipated. Two of these delays were related to the transition of Symantec’s global subscription business to Digital River and the anticipated ramp of business from Microsoft.  Despite these delays, we remain very confident in the long-term value of these client relationships and our ability to expand our margins by delivering additional products and services. We remain committed to providing the highest level of service to our clients – the type that fosters and strengthens lasting partnerships."

The company is trying to sugarcoat this with the announcement of an expanded Microsoft pact with the launch of its full suite of marketForce(TM) strategic marketing programs to support the sale of Microsoft’s 2007 Office system products.  It further announced that it has authorized an expanded share repurchase program to buy back up to $200 million in common stock, in a new plan to replace and supercede the $50 million buyback plan already in place.

Jefferies Internet analyst probably wishes it was possible to go back in time to remove that "Raised to Buy from Hold" rating upgrade just last week.  Unfortunately this can happen during many spots in the cycle in a summer.  Shares are indicated down more than 10% in after-hours to under $45.00; the 52-week trading range is $37.70 to $60.99.

Jon C. Ogg
June 27, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.