Providing e-commerce technology sounds a bit archaic. But it's still a healthy growth business for DigitalRiver
In the second-quarter earnings report last week, revenues surged 39% to $71.3 million. About 42% of sales came from foreign markets. Net income was $13.3 million, or $0.30 per share (which includes $3.5 million for stock option expenses). Last year's second-quarter net income was $10.2 million, or $0.26 per share.
Basically, Digital River provides outsourced e-commerce services -- something it has done for the past 10 years. This includes store design, development, merchandising, order management, fraud prevention, digital product delivery, and even Web analytics. Clients include biggies like Autodesk
And Digital River continues to invest in its offerings. There is, for example, the oneNetwork Marketplace. This is an efficient system that allows customers to offer products through affiliates (third-party websites that get a commission for providing e-commerce leads).
Digital River has also invested heavily in making its services global. Basically, the company is developing a massive footprint for e-commerce, which can scale across complex markets such as China.
No doubt, this is a key competitive advantage for Digital River. In fact, this has been a significant factor in attracting new business. And given the complexities of foreign e-commerce, it's something customers would rather outsource.
For the third quarter, Digital River projects revenues of $74 million and earnings of $0.38 per share. The Street forecasted earnings of $0.39 per share and revenues of $72.4 million. As for the full year, Digital River is projecting revenue of $305 million and earnings of $1.74 per share. The consensus was for sales of $301.8 million and earnings of $1.72 per share.
However, on the conference call, management indicated that Digital River has snagged some mega-customers, one of whom is estimated to constitute more than 10% of revenues. The rumor is that the big elephant is Microsoft.
Although such deals take time to implement and hit the bottom line, they provide much growth potential for 2007. And given the demand for global e-commerce solutions, there may be other big deals before the year is over -- giving investors lots of good news to chew on.
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Fool contributor Tom Taulli does not own shares mentioned in this article.