QUOTE AND NEWS
Benzinga  Oct 26  Comment 
On CNBC's Stock Pops & Drops, Tim Seymour said that he is a buyer of Ford Motor Company (NYSE: F) after it dropped 4.31 percent on Friday. He thinks that earnings were fine and that the restructuring in Europe and F-150 are catalysts for a move...
Reuters  Oct 24  Comment 
Well-timed bullish options bets on Digital River Inc were placed about two weeks before the e-commerce services company said on Friday it would be taken private.
Benzinga  Oct 24  Comment 
Digital River, Inc. (NASDAQ: DRIV) +48% - The company announced an agreement to be acquired by Siris Capital Group for $26 per share. BJ's Restaurant, Inc. (NASDAQ: BJRI) +25% - The company reported earnings on Thursday, beating EPS estimates...
StreetInsider.com  Oct 24  Comment 
Digital River (Nasdaq: DRIV) 47.8% HIGHER; announced that it has entered into a definitive merger agreement to be acquired by an investor group led by Siris Capital Group, LLC in a transaction valued at approximately $840 million. Under the terms...
Benzinga  Oct 24  Comment 
Midway through trading Friday, the Dow traded up 0.52 percent to 16,764.34 while the NASDAQ surged 0.39 percent to 4,470.29. The S&P also rose, gaining 0.46 percent to 1,959.85. Leading and Lagging Sectors In trading on Friday,...
TheStreet.com  Oct 24  Comment 
NEW YORK (TheStreet) -- Shares of Digital River Inc. are climbing higher by 47.35% to $25.61 on heavy volumeain late morning trading on Friday following the company's announcement it will be taken private by an investor group led by Siris...
Wall Street Journal  Oct 24  Comment 
Digital River said it has agreed to be acquired by an investor group led by Siris Capital Group for $831.5 million in cash.
Benzinga  Oct 24  Comment 
Digital River (NASDAQ: DRIV) shares moved up 47.07% to $25.56. The volume of Digital River shares traded was 6637% higher than normal. Digital River agreed to be acquired by an investor group led by Siris Capital Group for $26.00 per share in...
Benzinga  Oct 24  Comment 
Benzinga  Oct 24  Comment 
Digital River (NASDAQ: DRIV) shares jumped 47.04% to reach a new 52-week high of $25.56 after the company agreed to be acquired by an investor group led by Siris Capital Group for $26.00 per share in cash. BJ's Restaurants (NASDAQ: BJRI) shares...
StreetInsider.com  Oct 24  Comment 
* Digital River (Nasdaq: DRIV) announced that it has entered into a definitive merger agreement to be acquired by an investor group led by Siris Capital Group, LLC (collectively “Siris”) in a transaction valued at approximately $840...




 

Digital River (NASDAQ: DRIV) is an international E-commerce outsourcing firm. It runs e-commerce sites for software companies and other high-tech corporations such as Motorola (MOT), 3M Company (MMM), and Symantec (SYMC). Digital River also provides marketing and data mining services in order to discover customer trends.

DRIV's revenues have grown by 504% since 2001 despite several industry-wide crises in e-commerce. Because Digital River provides the online marketplace platform as well as derivative products, it receives a percentage of the price of goods sold on its sites. This translates to low cost of sales, while its margins depend on the revenue earned by its clients. As more people around the world turn to the Internet to make purchases, DRIV is poised to benefit by expanding its services to existing clients and adding new ones.

The growing e-commerce market, however, is also attracting new competition for DRIV. Low barriers of entry due to the low cost of sales mentioned above allow for a constant influx of start-up competitors.

Digital River's services include design, development and hosting of online stores, store merchandising and optimization, order management, denied parties screening, export controls and management. Temporary agencies like Adecco SA provides supporting staffing with the growing number of new graduates, it has kept the business booming. Through partnership the company acquire subsidiary services like tax compliance and management, fraud management, digital product delivery via download, physical product fulfillment, subscription management, online marketing including e-mail marketing, management of affiliate programs, paid search programs, payment processing services, Website optimization, Web analytics and reporting, compact disc (CD) production and delivery[1]. In May 2010, the Company acquired fatfoogoo.[2]

Business Overview

Digital River is an international E-commerce outsourcing firm. It runs e-commerce sites for software companies and other high-tech corporations such as Motorola (MOT), 3M Company (MMM), Symantec (SYMC) and Google(GOOG). Digital River also provides marketing and data mining services in order to discover customer trends. . In addition, they offer marketing research, loyalty programs, web hosting, online advertising, and an online payment mechanism. Furthermore, they are also exploring ways in which to make money in the online gaming industry by operating a gaming news website[3].

Digital River's business is dependent on companies wanting to take their sales online. Companies do this in an effort to expand their markets while avoiding the cost of having to establish a physical presence.

Apart from helping companies establish an online presence, Digital River must be able to guide potential customers to these sites. Since Digital River earns a percentage of price of goods sold, their ability to perform search engine optimization and relevant advertising is crucial to their future growth. The e-commerce business as a whole has seen consistent growth since its inception, and with more and more people purchasing online, Digital River will look to participate in this growth.

Business and Financial Metrics

Second Quarter 2010 Results[4]

Digital River's second quarter revenue totaled $81.8 million, compared to $96.6 million during the same period in 2009. Second quarter GAAP net loss was $2.5 million, or $0.07 per share. This compared to GAAP net income of $11.8 million, or $0.31 per diluted share, in the second quarter of 2009. These results, which were better than management's second quarter guidance for a net loss of $0.12 per share, reflect a one-time restructuring charge of approximately $2 million, primarily related to a reduction in workforce.

The company's price to sales index jumped from 2.45 in 2009 to 2.76 in 2010 which showed a positive capital growth and a cost per share of $14.48.[1]

Business Segments

Store Design, Development and Hosting[1] [2]

This company offers its clients web design services. Its e-commerce solutions are deployed and implemented in a variety of ways from shopping carts through merchandise online stores. The online stores operates for its clients to match their branding and web services. When a shopper navigates from a client’s site to their store, the transition is seamless. The company tracks order(s) processed through their payment processing, fraud screening and fulfillment (either digital or physical) and notifies the buyer via e-mail once their transaction are completed. The company design, development and hosting capabilities are influenced by the evolution of global e-solutions which are developed to handle lastest technology Apps. and computers from Apple Corporation.

The global cloud-based solution enables physical and digital goods merchants to sell directly to new or underserved groups of business buyers by tailoring their e-commerce services and using authenticated portals, segmented pricing, preferred payment methods, private reseller networks, and more. For some companies, selling direct to business buyers has materially increased margin efficiency and produced renewal rates of 30 percent gain. B2B [5].

Store Merchandising[2]

The Company’s technology platforms support a range of merchandising activities. This enables its clients to execute promotions, up-sell, and cross-sell activities and to feature specific products and services during any phase of the shopping process. From the home page of its clients’ online stores through the checkout and thank you pages, its solution allows clients to deliver offers.

Order Management and Fraud Screening[2]

The Company manages all phases of a shopper’s order on its clients’ e-commerce stores. It processes payment transactions for orders placed through the technology platform and support a variety of payment types, including credit cards, wire transfers, purchase orders, money orders, direct debit cards and many other payment methods accepted both in the United States and around the world. Through these payment systems, accountability is a key in putting transaction record source data in an accurate streamline format which may be better understood by both the business and end-users.

Digital and Physical Fulfillment Services[2]

The Company provides both digital and physical fulfillment services to its clients. It offers the clients an array of electronic delivery capabilities that enable delivery of digital products directly to customers’ computers via the Internet. Delivery is completed when a copy of the purchased digital product is made from a master, generally stored on the technology platform and then downloaded to the purchaser. Optionally, buyers can, for an additional fee, request that a CD be created and shipped as a backup for their order.

Customer Service[2]

The Company provides multiple delivery channels and supports its customers products and services through their customize platforms. It provides assistance to buyers regarding ordering and delivery questions around-the-clock globally. Most of it's customers are retained due to excellent Total Customer Satisfaction and real-time capabilities of meeting client's needs. This provides Quick access to reach most of their requests and response time.

Advanced Reporting and Analytics[2]

The Company captures and stores detailed information about visitor's traffic during sales through online stores and manages their clients. This information is stored in the database systems where it is available for analysis and reporting. The Company provides clients access to a collection of standard and customise reports via its Web analytics technology. This enables the clients to track and analyze sales, products, transactions, customer behavior and the results of marketing campaigns. Usage of these data is essential to both the company and customers which may create a need for historical data store.

Strategic Marketing Services[2]

The Company offers a range of marketing services designed to increase customer acquisition and improve customer retention. Through a combination of Web analytics, analytics-based statistical testing, optimization and proven direct marketing practices, its team develops, delivers and manages programs, such as paid search advertising, search engine optimization, affiliate marketing, store optimization and e-mail optimization on behalf of the clients. The Company generally charges an incremental percentage of the selling price of merchandise for sales driven by its marketing services activities. These Strategic Marketing Services have pushed Net Fixed Assets (NFA) from 48.06M to 51.46M with a net income rise of 15.74M in third quarter of 2011. The latest wireless network servers has increased delivery speed of internet applications from federated/distributed data stores to our customers around the world.

Payment Services[2]

This Company offers payment services for online merchants worldwide. It also offers a range of back office payment reconciliation services which may have resulted in programs such as e-payments. The Company sells and markets these services through a direct sales channel located in offices in the United States and Europe. These services are provided either via a direct interface between the client’s commerce systems and its payment services platform. The Payment Card Industry (PCI) compliant wrapped secure Web based payment page that is served to the client’s commerce system on a transaction by transaction basis.

Trends and Forces

DRIV's new partnerships are crucial to its revenue growth

A bulk of Digital River's future income is expected to come from its new agreement with Microsoft (MSFT) to sell Windows Vista and Office 2007 upgrades online via Microsoft's Digital Locker initiative. This future income stream depends on people adopting Vista and Office 2007. DRIV is also working with Electronic Arts (ERTS) to further its online sales platform, a move which could bring significant revenue in the future as more people purchase games online. By selling downloadable games, DRIV will be in direct competition with Valve Corporation's Steam content delivery system. Digital River Inc. is looking forward to form partnership with afflitates and also enabling affilates to generate income in the future. With a possible upcoming merger with YAHOO, profitability and quarterly earnings may improve the bottom line and future acquisitions to well place affiliates economically and improve their B2B.

DRIV depends on one client for a quarter of its revenues

Digital River is currently dependent on its relationship with Symantec (SYMC). Although Digital River is attempting to offset this through its partnership with Microsoft, pressure on the electronic security industry to lower prices (and the rise of cheaper alternatives) could harm Symantec's future sales, which in turn would harm Digital River's.

As of July 2010, DRIV is no longer managing Symantec's Ecommerce Platform. Nor are they providing any marketing, affiliate, or customer service for Symantec. DRIV has fared well through this transition and will continue to do well with its ongoing relationship with Microsoft.

DRIV's growth depends on increasing sales and consumer spending on technology

At the end of the day, Digital River's revenue comes from online sales to consumers. Therefore, it is, like most of the retail industry, susceptible to recessions and other declines in consumer spending. After Hurricane Katrina in 2005, for example, Digital River saw a decline in revenue. Currently, due to the problems in the housing market and the credit crisis of 2007, as well as the 2008 recession harmed Digital River's sales. With the decline in housing market, employment rate fell by 1% to put the country's total unemployment rate at 9%. We have seen great progress with DRIV as a whole based on their systems applications in generating sophisticated search engines similar to that of GOOG.

DRIV is looking to expand into additional international markets

Digital River has considerable expertise on global markets, particularly in the areas of payment processing, multilingual support, and online hosting and merchandising[6]. Although GSI Commerce has entered the arena through its acquisition of Aspherio S.L., Digital River still has many more years of experience in the field. It has offices in various European countries, Taiwan, China, and Japan[7]. Such a presence is important to Digital River because it makes its revenue stream less susceptible on the economic fluctuations of the U.S. economy.

Competition

Digital River competes with Art Technology Group, Inc., IBM Corporation, IBM Global Services, Accenture, Inc., GSI Commerce, Inc., asknet Inc., Bertelsmann AG, CyberSource Corporation, PayPal Corp., ValueClick, Inc., aQuantive, Inc., Amazon.com, Inc., Buy.com, Inc., Network Solutions, LLC, Akamai Technologies, Inc., Yahoo!, Inc., eBay, Inc. and Hostopia.com, Inc.

Digital River faces competition from other e-commerce outsourcing companies, including those that specialize in one of DRIV's sub-businesses (such as logistics or search optimization), and companies that have successfully developed and implemented their own e-commerce solutions in-house and now lease them out to others.

In-house competition

Amazon.com (AMZN): Amazon developed their own in-house e-commerce solution, which they now offer as a platform for others to use. Its customers range from individuals to companies seeking to sell their goods online. Its sheer size and name recognition, as well as its expansion into search and application hosting, create a significant threat to Digital River.

The company is facing tough competition from other online e-commerce corperations which have lately forced analysts to indicate a good time to "BUY". This will have an impact to decisions made by some of its investors and bankers to invest on future ROI.

EBay (EBAY): After creating a platform where individuals can sell items to one another, EBay extended it to allow small companies to sell their goods its site. Unlike Digital River, it has a very high asset turnover ratio, meaning it makes more money in sales for every dollar of assets that it controls. This makes the company more resilient during recessions.

Other e-commerce outsourcing firms

GSI Commerce (GSIC): GSI is possibly Digital River's closest competitor. It covers the exact same product mix as Digital River. Although GSI is the larger and more established of the two, Digital River is expanding faster into new markets.

ValueClick (VCLK): ValueClick offers comprehensive online advertising campaigns. ValueClick provides most of the same services as Digital River's online advertising division, but on a much larger scale.

NaviSite (NAVI): NaviSite offers website hosting, site optimization, and managed infrastructure services. While it does not offer services such as advertising and search engine optimization, it is a powerhouse when it comes to developing and deploying online applications.

References

  1. 1.0 1.1 1.2
  2. 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Reuters: Digital River Company Profile
  3. DRIV FY 2007 SEC Filing Item 1 p4
  4. Marketwatch: "Digital River Announces Second Quarter 2010 Financial Results" July 28, 2010
  5. jbvef2000: Business-to-Business
  6. DRIV FY 2007 SEC Filing Item 1 p7
  7. Digital River About Us
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