Why Digital River Shares Sank

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 online commerce technologist Digital River (NAS: DRIV) plunged 12% on Friday after its current-quarter guidance disappointed Wall Street.

So what: Digital River's first-quarter results managed to squeak past estimates, but a lower-than-expected, second-quarter outlook is forcing investors to lower their valuation estimates. Specifically, soft international demand, coupled with rapidly rising costs, seems to be triggering serious concerns over its future profitability.

Now what: For the current quarter, management now sees adjusted EPS of $0.17-$0.19 on revenue of $92 million-$94 million, well below Wall Street's view of $0.23 and $95.3 million. "While we are maintaining a slightly cautious outlook on the European economy," CEO Joel Ronning reassured investors, "we continue to invest for the future, developing some great products in cloud-based subscriptions." More important, with the stock now down about 50% over the past year and sporting a forward P/E of 12, those long-term growth prospects might be available on the cheap.

Interested in more info onDigital River?Add it to your watchlist.

At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.