Digital River Inc. (DRIV) is a leading provider of e-commerce platforms from which the company’s customers deliver their goods and services.
In addition to the designing and installation of the platforms, DRIV also provides marketing, research, loyalty programs and several other ancillary resources to aid in maximizing the customers return on their investment in web based sales.
e-Commerce Giants
DRIV has experienced rapid growth in the last several years. The company has been growing at a faster rate than its main competitor, GSI Commerce (GSIC) through the addition of new markets.
DRIV’s primary competitive threat, however, is coming from companies which have developed their own solutions for access to e-commerce and are renting their systems out to others.
The most serious competition to Digital River could come from e-commerce giants E-Bay (EBAY) and Amazon (AMZN). Amazon, with its massive size and its outstanding branding may be the biggest threat. E-Bay also poses a threat due to their high rate of asset turnover which drives advertising revenue and insulates the company from significant revenue loss during economic downturns.
Hedging Risk and Continued Growth
DRIV had an additional area of exposure due to their past heavy dependence on one customer, Symantec, which has accounted for as much as one-quarter of Digital River revenues. Increased diversification in their customer base has recently mitigated this concern.
Also on the plus side, Digital River is well positioned internationally to increase market share in Europe and Asia, as they are well ahead of the competition in knowledge of these markets, with a physical presence in many international locations.
As a result of its acquisitive history, Digital is the global leader in serving the e-commerce industry. With a revenue growth rate of 16.7% in its most recent reporting period, the company generated an industry leading operating margin of 19.13%. GSIC in the same period had a higher growth rate but operated at a loss of 2.34%.
The global decline in consumer spending will likely compress Digital’s earnings in the coming year, but the company expects to retain profitability as a result of the continued emphasis on the development of new products and services which will contribute increasingly to the company’s total revenue.
DRIV is currently trading at $26.50 per share. The high for the last 52 weeks has been $45.45 and the low was $16.88.
While the threats for continued growth for DRIV are substantial, the company has been adept at reacting to competitive forces. Management has guided the company to continued increases in market share and profitability.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
