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Why Digital River Inc. Shares Popped Today

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 River  (NASDAQ: DRIV  ) are trading 8% higher in the afternoon after rocketing to an opening-bell gain of over 11% on Wednesday morning. Investors have cheered Digital River's strong first-quarter earnings and are reacting favorably to respectable (though not strong) guidance issued for the remainder of the fiscal year.

So what: Digital River's first-quarter revenue fell 12% year over year to $97.8 million, but this reduced figure nevertheless cleared Wall Street's low expectations for $93.6 million in revenue. The company's earnings of $0.20 per share stomped on analyst expectations of a more modest $0.10 in EPS.

Digital River now expects to generate between $84 million and $87 million in revenue, and anticipates recording a loss of anywhere from $0.07 to $0.03 per share, for the second quarter. Analysts had expected $83.6 million in revenue, but had hoped Digital River would reach breakeven on the bottom line for the second quarter. Digital River also issued full-year guidance, which anticipates revenue in the range of $377 million to $382 million with an EPS range of $0.41 to $0.51. Analysts had sought $371.2 million in full-year revenue and $0.42 in full-year EPS, so the annual projection came in ahead on both counts.

Now what: This isn't really as good a report as it may seem on the surface. Digital River recorded $394.7 million in revenue for its 2013 fiscal year, so even the high end of its full-year guidance would result in a 3% year-over-year decline on the top line. The company's earnings per share, which have dawdled in negative territory of late as the result of one-time charges, were last positive toward the end of 2012, as Digital River recorded $0.42 in trailing 12-month EPS during the third quarter of that year. There might be some opportunity here, but it's buried under a thick layer of bad history. You'll have to dig pretty deep to uncover a hidden gem, and you're still far more likely to wind up with a pile of dirt.

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Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

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12/31/1969 7:00 PM
DRIV $0.00 Down +0.00 +0.00%
Digital River CAPS Rating: ***