News Column

Digital River Reports 4Q Loss, Refocuses

Feb 7, 2013

Leslie Brooks Suzukamo

ecommerce

E-commerce specialist Digital River swung to a loss of $200 million for the fourth quarter last year due to a goodwill impairment charge for its past acquisitions.

The company is cutting some positions, but there should be little effect on its Minnetonka headquarters, where it employs about 700 people -- or half its global workforce -- officials said Wednesday, Feb. 6.

The company, which runs the online stores for numerous makers of software, consumer electronics and electronic games, reported Wednesday that revenue for the quarter ended Dec. 31 fell by 9.5 percent to $101.3 million.

Chief Financial Officer Stefan Schulz said revenue suffered primarily because no blockbuster electronic game was released this holiday season compared with the same period in 2011.

The company swung from a fourth-quarter profit of $4.3 million in 2011 to a $200 million loss in 2012. The loss was fueled by a $175.2 million goodwill writeoff for acquisitions that are now worth less than what the company paid for them, Schulz said.

For the full year 2012, Digital River reported revenue of $386.2 million, down 3 percent from 2011, and a loss of $195.9 million compared with a net income of $17.2 million in 2011.

The company is shutting down three offices overseas and consolidating those operations mainly in the Twin Cities, Schulz said. Much of the work being de-emphasized relates to business services, such as affiliate marketing, he said.

The e-commerce outfit also will let go of four of its eight global data centers and use advances in technology tied to cloud computing to get the same work out of its remaining centers, Schulz said.

The company's two Twin Cities-area data centers will remain in operation, he said.

Digital River will put more emphasis on its core business of helping companies run their online retail operations, including offering a "modular" or a la carte menu of services as opposed to its previous model that sold its services in an all-inclusive bundle, Schulz said.

"Clients have become more sophisticated," Schulz said. "They may already have a product catalog online, for instance, or they may do their own payment processing."

The changes mean Digital River has or will let go of some of its employees, but it also is hiring people, so there may be little to no net change in the total number of employees, the CFO said.

At the end of last year, the company had about 1,400 employees worldwide, including about 700 in Minnetonka, he said. The payroll swelled to 1,475 from its acquisition of LML Payment Systems of Vancouver, British Columbia, which closed in January.

By the end of this year, the number of Digital River employees should be roughly the same as at the end of last year, Schulz said.

The company forecast that revenue for the first quarter this year will range from $101 million to $104 million, more than the $98 million consensus expectation of analysts polled by Thomson Reuters.

Shares of Digital River fell 14 cents, or 1 percent, in after-hours trading to $14.54, wiping out the 14 cents they gained Wednesday before the markets closed.



Source: Pioneer Press, St. Paul, Minn.


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