Why Digital River's Shares Sank

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 cloud-based software distribution company Digital River (Nasdaq: DRIV  ) fell as much as 12% after the company reported third-quarter results and announced that its CEO would be stepping down.

So what: Digital River's third-quarter results actually crushed Wall Street's projections, with revenue of $91.7 million and a profit of $0.20, handily surpassing the $89.3 million and $0.15 analysts had been expecting. However, the company's fourth-quarter forecast of revenue ranging between $96 million and $100 million and a profit of $0.25-$0.31 is markedly below the $101.6 million and $0.37 the Street was looking for. To add to the poor guidance, Digital River's founder, chairman, and CEO, Joel Ronning, has decided to retire to spend more time with his family, piling on increased uncertainty into the mix.

Now what: Talk about a confusing quarter! The company's soon-to-be-completed acquisition of LML Payment Systems (Nasdaq: LMLP  ) is sure to add value to a growing payment processing market, but it has plenty of other global growth problems to contend with, as well as a now-ongoing search to replace its CEO. At roughly 12 times forward earnings, it's not particularly expensive, but there are enough unanswered questions (e.g., who the new CEO will be and how the company will generate organic growth in a tough global environment?) that I feel waiting on the sidelines might be the most prudent plan.

Craving more input? Start by adding Digital River to your free and personalized Watchlist so you can keep track of the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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