Over the past few weeks, shares in e-commerce outsource provider DigitalRiver (NASDAQ:DRIV) have been selling off after reaching a 52-week high of $44 in early December. Helping to push the stock downward was news that Computer Associates (NYSE:CA) was giving away one-year trials of its firewall and security software for free. It was seen as a big threat to competitor Symantec (NASDAQ:SYMC), which is a major customer of Digital River, providing 27% of revenues in 2003.

So while the stock had peeled back from its highs, it appears the business has been doing just fine, thank you.

Digital River released record earnings and profits yesterday, reporting revenues of $48 million in the fourth quarter, or 77% over last year, and GAAP net income of $12.8 million, or $0.33 a share, more than double last year's performance. It also beat analyst estimates of $42.6 million and $0.27 a share, respectively. On a pro forma basis, Digital River's earnings came in at $0.43 a share, also well ahead of expectations. It's the fifth straight quarter that the company has beat estimates.

Digital River builds and personalizes customer websites. It hosts their websites and services their transactions, from order taking and order fulfillment to fraud protection, security, customer service, and integration with back-end systems. Rumors have also swirled that it was working with Apple (NASDAQ:AAPL) to enable its hugely popular iPod to download games, though it has come to naught.

It's certainly a turn of events for a company that, though surviving the dot-com implosion, ended up losing a high-profile contract with Major League Baseball. Since then, however, the company has been adding clients and currently has more than 36,000 customers and partners. Digital River reported having $292 million in cash and $195 million in long-term debt in the form of convertible senior notes. While it did not release a cash flow statement, last quarter it was generating more than $11 million in owner's earnings.

There's a lot to like about Digital River going forward. It competes in some broad areas against the likes of Electronic Data Systems (NYSE:EDS), BroadVision (NASDAQ:BVSN), and GSI Commerce (NASDAQ:GSIC), but trounces them all in terms of gross margins, management effectiveness, and profitability. At more than $40 a share as I write, it sports a rather lofty P/E of 41. And it would seem a bit pricey, too, with an enterprise value-to-free cash flow ratio of 18, but when you throw in growth prospects of 26% over the next five years, you get an EV/FCF/G value of just 0.73. Tempting.

Digital River raised guidance for 2005 to $195 million, up from its previous forecast of $188 million, with GAAP earnings of $0.93 per share, so it looks like the company is sailing on a river of growing profits and opportunity.

See also: "Apple Sailing on Digital River"

Fool contributor Rich Duprey once almost steered a sailboat into the Verrazano Narrows Bridge in Brooklyn. He owns shares in Digital River but does not own any of the other stocks mentioned in this article. Talk about Digital River on our discussion boards (free trial required).