Why Digital Generation Shares Popped

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 Digital Generation (NASDAQ: DGIT  ) were clocking in higher today, rising 28% after the company released a strong earnings report.

So what: The electronic content-distribution specialist delivered earnings per share of $0.09, well ahead of the analysts' estimate of just $0.02, which it hit a year ago. Sales were flat at $96.3 million, but that also topped the experts' mark. CEO Neil Nguyen said that DG's online business had increased 19% to $41.3 million, or 43% of total sales, due to "customers' growing use of video, the company's data driven campaign optimization, and the implementation of new analytics tools." The television segment did not fare as well, with sales dropping 11% to $55 million, while full-year revenue guidance of $370-$400 million was in line with analyst expectations at $386 million.

Now what: The jump in per-share profits from $0.02 a year ago to $0.09 is a little misleading, as much of that increase was due to declines in share-based compensation and acquisition expenses, costs that other companies often factor out when they report adjusted earnings. EBITDA for the world's leading multiscreen ad company was just 2% higher than a year ago at $31.1 million, meaning sales-driven profit increase was essentially null. The growth in the online segment is promising, but investors should want to see more meaningful improvements in the bottom line.   

Digital Generation has cleverly carved out its own niche in online media, but there are other hidden companies doing the same, especially in data. The amount of data we store every year is growing by 60% annually, and promises to continue. To identify a winner in this field, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained 300% since first recommended by Fool analysts, but still has plenty of room left to run. To get instant access to the name of this company transforming the IT industry, click here -- it's free.


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