BUY Recommendation-Digital River-$14.20

Digital River Inc. (NASDAQ–DRIV)

Valuation-$32.40
Price January 11, 2013-$14.20

We just stumbled across Digital River this past week. To us it looks like this once high flier (it hit $60 in the mid-2000’s) has come back to earth and is now a value stock.

DRIV just completed their acquisition of LML Payment Systems this past week. So our valuation is on a pro-forma basis since they spent about $100 million of cash for LML. Even so, they will have net-cash of about $246 million or $6.48 per share.

For their third quarter ended September 30, 2012 DRIV reported $92 million of sales (down from $95 million) and had a small loss of $700k or $.02 a share. For the nine months they reported revenues of $285 million compared to $286 million last year and they made $.13 per share versus $.34 last year. They have 97% gross margins. Their business is tied to ecommerce sales volumes and is seasonal with Q4 and Q1 generally being the best quarters.

We think this is a BUY here.

There are about 38 million shares outstanding and it trades about 275,000 shares a day.

About Digital River:
Digital River, Inc., the revenue growth experts in global cloud commerce, builds and manages online businesses for software and game publishers, consumer electronics manufacturers, distributors, online retailers and affiliates. Its multi-channel commerce solution, which supports both direct and indirect sales, is designed to help companies of all sizes maximize online revenues as well as reduce the costs and risks of running a global commerce operation. The company’s comprehensive platform offers site development and hosting, order management, global payments, cloud-based billing, fraud management, export controls, tax management, physical and digital product fulfillment, multi-lingual customer service, advanced reporting and strategic marketing services. Founded in 1994, Digital River is headquartered in Minneapolis with offices across the U.S., Asia, Europe and South America.

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