Update: Digital River Earnings

Aug. 9.14 | About: Digital River, (DRIV)

Summary

The company managed to meet expectations on the bottom line with recent earnings.

We still think the competition to too robust to warrant the current valuation.

We didn’t see the company meeting earnings, but find the recent downward revision of future earnings as no surprise based on the company’s history.

Digital River (NASDAQ:DRIV) posted earnings of a negative $0.01 per share for 2Q (meeting consensus), with revenues marginally beating expectations. But revenue was also on the top end of management guidance, coming in at $87.4 million, versus management guidance of between $84 million and $87 million. The company expects EPS to come in between $0.41 and $0.51. Current consensus is at $0.45.

We first covered Digital River back in November. Shares are down 15% since then. The stock is inching closer to our $13 price target, with another 15% downside remaining. In November, shares were trading at over 30x expected 2014 earnings.

Shares are now trading at close to 34x expected 2014 earnings. In our first article, one of our theses was that competition would just be too much for the company. We noted,

It's easy to try and cut corners where necessary, especially, given that the e-commerce industry has very low barriers to industry, with virtually no "economic moat," as Warren Buffett would say. Thus, the fourth headwind for Digital River is that it's trying to fend off competition from all angles. Its biggest competitive pressure comes from the in-house development of e-commerce capabilities. This can be done with the help of tools from Oracle and IBM.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.