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Why Digital River Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of e-commerce and marketing solutions specialist Digital River (Nasdaq: DRIV  ) plummeted 26% on Wednesday after the company's quarterly results and guidance came in below Wall Street expectations.

So what: Digital River's second-quarter EPS managed to top estimates, but a slight miss on revenues -- $90.77 million versus the consensus of $93.4 million -- coupled with a downbeat full-year outlook reinforces concerns over the trend towards tablets and away from PCs. Given its ties with Microsoft (Nasdaq: MSFT  ) , however, many bulls believe that the company remains perfectly positioned for the Windows 8 upgrade cycle starting in the fourth quarter.

Now what: For the full year, management now sees adjusted EPS of $0.96-$1.08 on revenue of $378 million-$380 million, well below Wall Street's view of $1.22 and $405.9 million, respectively. "This recent softness has caused us to temper our expectations for the remainder of the year," cautioned CEO Joel Ronning in a statement, "taking into consideration weaker PC sales and uncertainty in the macro economy." While Digital River's strong relationship with Microsoft might make today's plunge an enticing short-term opportunity, the ever-increasing popularity of mobile devices make the stock a worrisome long-term holding.

Interested in more info on Digital River? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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  • Report this Comment On August 02, 2012, at 11:49 AM, johndoe29 wrote:

    The only bullish factor for Digital River is higher revenue dependence on Microsoft business... which sounds a bit scary, which reminds me of their Symantec relationship.

    I wonder what's with their tendency to focus their effort on a single big business account...

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