Digital River Gains on Profit Forecast

Digital River, Inc. (Nasdaq: DRIV) was up US$1.78 at $9.28 early Wednesday, after the e-commerce service providerreported quarterly results that beat analyst estimates, and added that itexpects a profit later this year.

Prudential Securities reportedly upgraded the stock to strong buy fromaccumulate, while Deutsche Bank AB was said to have repeated a buyrecommendation following the news.

Digital River said its software and digital commerce services division turneda profit before interest, taxes, depreciation and amortization (EBITDA),earning $229,000 in the quarter, after posting a loss of $1.5 million in thethird quarter.

Chief executive officer Joel Ronning said that the results marked a “majormilestone” for the company.

“This accomplishment, combined with overall fourth-quarter results, are strongindicators that we are on a clear path to company-wide profitability,”Ronning said. “We have prudently managed our expenses while increasingrevenue.”

Digital River said that most of its business is coming from traditionalcompanies, rather than dot-com clients.

“We are seeing a shift in theInternet market, as more and more of the growth is being fueled by theincreasing presence of established brick-and-mortar companies,” saidRonning. “It’s these manufacturers, distributors and retailers that arelooking to the Internet to solve complex business problems and automatetraditional processes. This pattern is clearly emerging in our client base.”

The company said revenue for the fourth quarter ended December 31st rose 82percent from a year earlier to $10.1 million. The loss before goodwillamortization and acquisition-related costs was $2.4 million, or 11 cents pershare, well ahead of analyst predictions of a loss of 21 cents per share.

The net loss for the fourth quarter narrowed to $5.4 million, or 24 cents pershare, from $8.1 million, or 37 cents, in the third quarter.

Digital River said that it expects to generate income before goodwillamortization of a penny per share in the fourth quarter of 2001. Revenue forthe year as a whole will likely rise 80 percent, to between $56 million and$57 million, with a loss before goodwill amortization of 27 cents per share,the company said.

For the first quarter, revenue will likely total $12.2 million, helped byanother strong quarter from the software services division, Digital Riversaid. The company is predicting a loss before goodwill amortization andacquisition-related expenses of 10 cents per share for the current quarter.

Digital River, based in Minneapolis, Minnesota, provides e-commerce systemsand services including strategy, site development and hosting, order andtransaction management and customer service.