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Digital River to lose Symantec contract

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CIOL Bureau
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BANGALORE, INDIA: Shares of Digital River Inc slumped 40 percent after it said its top customer Symantec will not extend an existing contract to manage its online traffic.

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The e-commerce services provider's shares, which were down 32 per cent in pre-market trade, fell further after the company said it may not provide an outlook for 2010 when it reports its quarterly results on November 3.

Digital River said Symantec expects to move all the online traffic currently outsourced to Digital River to an internally developed e-commerce system before the current contract expires on June 30, 2010.

"Symantec's decision to take it in-house came as a big surprise to us," JMP Securities analyst Sameet Sinha said.

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In 2008, sales of products to Symantec accounted for about 24 percent of Digital River's revenue, while sales from proprietary Digital River services to Symantec consumers accounted for 9 percent of revenue.

Symantec contributed about 32 percent to both revenue and earnings before interest, taxes, depreciation and amortization, Sinha said. "So it's going to have significant impact."

EBITDA could be down 25 percent in 2010, assuming that the entire Symantec business goes away in the beginning of 2010, Sinha said.

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Digital River also said it expects third-quarter results to be at or slightly above the top end of its outlook.

In July, the company forecast third-quarter earnings of 38 cents to 41 cents a share, excluding items, on revenue of $96.5 million to $98.5 million.

Digital River estimates sequential revenue from its non-Symantec business to have grown at about 8 percent in the third quarter, compared with about 2 percent growth in the second quarter.

During a conference call, the company said it would provide a non-Symantec revenue outlook on November 3.

Shares of Digital River fell $16.04 to $24.38 Monday morning, making them the top percentage loser on Nasdaq.

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