Digital River Flows Gently

Tue. August 05, 2008; Posted: 07:10 AM

Aug 05, 2008 (Zacks Investment Research via COMTEX) -- DRIV | Quote | Chart | News | PowerRating -- Digital River, Inc. (DRIV) is a leading player in the digital delivery market, which is expected to grow at an annual rate of 25% for the next several years. The company reported revenues of $98.4 million in Q2:FY08, up 26% from a year ago but down 5.0% sequentially, and ahead of ours and the consensus estimate of $91 million. Approximately 44% of the total sales in Q2 2008 were generated outside United States. Hence, any unfavorable movement in foreign exchange rates can negatively affect the top-line. Despite uncertain macroeconomic conditions, management raised its guidance for 2008 and now expects revenues to come around $410 million, up from earlier projection of $401 million. EPS guidance was changed from $1.89 to $2.00, but when adjusted for the shift from the previously assumed 31% tax rate to the new 27% rate, 2008 guidance is unchanged, despite the $0.04 upside in Q2. The reduction in H2:08 EPS guidance is attributable to lower interest rates (about $0.01) and plans to pull forward some 2009 expenses related to the recent ERP implementation. For Q3:FY08, the company guided to revenue of $98.5 million, above consensus at $96.5 million, and EPS of $0.47 at the new 27% tax rate, or $0.44-$0.45 compared to consensus of $0.45 at 31% tax rate. Given flattish earnings guidance for Q3 with back-end loaded revenue growth expectations, we have maintained our Hold rating and target price at $39. The target price is derived by applying a target P/E multiple of 19.5x to our pro forma FY2008 estimate, which is higher than the current industry median. Read the full analyst report on DRIV

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For full details on Digital River Inc (DRIV) click here. Digital River Inc (DRIV) has Short Term PowerRatings of 7. Details on Digital River Inc (DRIV) Short Term PowerRatings is available at This Link.

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