Sun Setting Over Digital River

E-commerce outsourcing company Digital River Inc. saw its stock price fall
about 48 percent in the opening minutes of trading today after revising its
financial guidance statement for the second time in three days.


The stock plunged $7.15 a share to $7.66 shortly after
trading began today. The stock was downgraded by Deutsch Bank Alex. Brown to
Buy from Strong Buy and the price target was lowered to $13 from $26.


Digital River was struggling mightily to put on its game face, the company
said today it has closed on its acquisition of certain Beyond.com assets,
paying a little less than expected, and revised its financial guidance for
the second time in three days, raising its 2002 outlook slightly.


The Minneapolis-based company
lowered its guidance
on Friday at a time when investors could not react
immediately.


The company said today that the Beyond.com asset acquisition is expected to
be neutral to the company’s earnings in the first quarter of 2002 and
accretive to earnings starting in the second quarter.


As a result of the closing, Digital River increased its full year 2002
revenue guidance to $72 million to $75 million. Additionally, the company
said that it expects earnings per share for 2002, prior to the amortization
of acquisition-related expenses and some previously announced first quarter
charges, to be in the range of 23 cents to 25 cents.


On Friday the company had said it expects full-year revenue to be in the $70
million to $73 million range.


Digital River, which provides e-commerce outsourcing solutions to software
publishers and online retailers, has seen its revenues rise steadily, but has
never made any money. For all of 2001, it lost 81 cents a share.


But CEO Joel Ronning in a conference call this morning said that “we believe
(these) full-year expectations are very conservative.”


“We remain bullish on the future of the company,” he said, adding that he “is
confident we will see new client growth.”


Company execs said that IT departments at client companies have become more
conservative in spending — “they are much more cost conscious than they
were.”


The value of the Beyond.com assets has steadily declined. Initially, the
deal
called for payment of $3.5 million in cash and $7.5 million in
common stock


Digital River
revised the terms of its Beyond.com deal in February.
. Now, in the final
version of the deal, the company said it has acquired substantially all of
the assets and customer contracts related to Beyond.com’s eStores business in
exchange for approximately $2.9 million in Digital River common stock.
However, in the conference call executives said that some of the Beyond.com
customers had termininated their relationship with Beyond and had not yet
signed up with Digital River.


The company also is taking a $2.5 million first-quarter charge related to
pending litigation on three fronts: a shareholder lawsuit related to its IPO; patent infringement claim; and an unspecified contractual dispute.

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