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Digital River Up, WebSense Down

Posted on Friday, Jun 13th 2008

Digital River, Inc. (DRIV), provider of outsourced e-commerce solutions to various companies in the software and high-tech products, consumer electronics, computer and video games, announced Q1 results last month crossing $100 million for the quarter for the first time ever.

Revenues of $103.6 million beat the market’s expectations of $98.6 million and recorded a 13% increase over the year. EPS of $0.50 was higher than the market’s view of $0.48 even though it slipped from the previous year by 7%.

During the quarter they repurchased 3.8 million shares for $138 million.

Going forward, the Company is projecting Q2 revenues of $91 million with EPS of $0.33 and annual revenues of $401 million with EPS of $1.89.

The Company expanded operations in Europe with a store in the Czech Republic to support Symantec sales and launched sites for Poland, Russia and Turkey. They tied up with Quark, a market leader in desktop publishing software, and are launching new global sites in the Asia Pacific. They continued to look at acquisitions as a source of growth and mentioned their interest in similar companies in alternative geographies.

They also expanded in their strategic market areas of games and consumer electronics markets through relationships with Electronic Arts, Turbine, Midway, BenQ and Skype. They launched a marketing program called Mass Dynamic Personalization – MDP – which enables them to tailor site flows, personalize shopping experiences and deliver relevant messages for the consumer based on their shopping patterns.

The management feels optimistic about the adverse economic pressures. They project these conditions to favor outsourcing. Further, the company will benefit as overall retail spending progresses towards online channels, which they empower.

The stock has risen 21% since the announcement of the results and is currently trading at $39.86.

DRIV 1yr

Websense (WBSN), the Web filtering solutions provider, with billings 10% lower over the year, reported revenues of $86.5 million beating the market’s expectations of $84.6 million. EPS of $0.35 was also higher than the street’s expectations of $0.31.

During the quarter, they repurchased approximately 264,000 shares for approximately $5 million.

They blamed their performance on customer attrition, discontinuation of products and OEM partnerships, and contraction of customer contract durations to 20.6 months from 23.4 months.

Their merger with SurfControl does not seem to be doing well. With contract durations having slipped, they also experienced de-synergies in their customer base. During the quarter, they also sold off SurfControl’s consumer filtering product – CyberPatrol.

The Company expects revenue to decline each quarter on a sequential basis throughout the remainder of the year. For the year, they maintained their projection of $325-$335 million revenues with $1.15-$1.25 EPS.

Despite their performance and current spending pressures on the economy, the management was optimistic about their market standing. They claimed that the present web 2.0 world required them to be able to identify malware, blended e-mail and web threats. They believe that they possess the required technology to be able to combat such threats. They do not foresee any competition in the arena as well, adding to their confidence. During the quarter, they bundled web and e-mail products with promotional programs to compete more effectively against their competitors. They also tied up with encryption partners.

The stock did not react favorably to the results and has been declining since then. It is currently trading at $17.70, 12% lower since the announcement.

WBSN 1yr

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Its also affecting us as customers.

Perhaps Slightly Less WebSensenseless

jane Saturday, June 14, 2008 at 3:26 AM PT

[…] Management was previously optimistic about the economic pressures, claiming that such pressures woul…. Last quarter’s results proved their optimism to be well founded, but with the earnings season coming up, and the world fully in the jaws of a brutal financial crisis, the optimism may not hold. […]

Digital River: Buying Opportunity - Sramana Mitra on Strategy Monday, October 6, 2008 at 9:18 AM PT