Is Digital River Still Really Cheap? (DRIV)

At the end of 2004, Digital River's (NASD:DRIV) stock traded at about $43. That's where it is now. Since financial results have improved so markedly, investors have to wonder whether the stock was way too expensive then, or too cheap now.

The numbers for 2004 were fine. Revenue was $154 million and operating income was almost $35 million. But, since then, the company turned in a 2006 performance with revenue of over $220 million and operating income of nearly $67 million.

After turning in such solid numbers, the company raised guidance for Q1 2006 on March 21. Digital River, Inc. did get some bad news the next day when DDR Holdings filed a patent lawsuit related to e-commerce outsourcing systems. The same day, the company placed four million of its shares in a private placement and raised $170 million. The company said this would be primarily for acquisitions, but it was dilution nonetheless.

Digital River works in e-commerce outsourcing. It also builds and manages online businesses for more than 40,000 software publishers, manufacturers, distributors and online retailers. And, these businesses got off to another good start in 2006.

Revenue for Q1 was $78 million, a 43% increase from the same period a year ago. Operating income rose to almost $21 million. The company said revenue for Q2 would be $70 million and $300 million for the full-year 2006. Some investors thought that good results just weren't enough and took the share price down 7% to $43.48.

Digital River still trades near its 52-week high of $48. The 52-week low is $22.43. But, looking back, if the stock was anywhere near fairly priced in late 2004, it is likely to be worth a look today. The results have gotten that much better.

DRIV 18-month chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].