Digital River Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of e-commerce solutions specialist Digital River (NAS: DRIV) plunged 19% on Friday after issuing a disappointing short-term outlook.

So what: While its third-quarter results were largely in line with estimates, Digital River's fourth-quarter profit warning -- it now sees EPS of $0.32-$0.35 versus the consensus of $0.39 -- is forcing analysts to continue lowering their growth estimates. In fact, the shares are now down nearly 50% over the past six months alone and are currently flirting with the 52-week low.

Now what: I'd expect the shares to stay flattish in the short term. One of the big worries surrounding Digital River is its dependence on software giant Microsoft (NAS: MSFT) (which accounts for nearly a third of its revenues), but with the soft economy continuing pressure on its other customers, investors don't exactly have a lot of positive catalysts to bet on. Of course, with the stock now trading at a forward P/E in the low teens, Digital River seems like a decent long-term opportunity as management steadily signs new deals.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Digital River and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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