AlexBrown report...thought you guys might be interested in this (sorry for the formt):
Andrikopoulos, Shaun G. (415) 477-4234 06/23/1999
Patel, Jeetil J (415) 477-4223
Deutsche Banc Alex. Brown
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DIGITAL RIVER INC. [DRIV] "STRONG BUY"
Meeting with Management Highlights Strength of Business--Positive Stock
Catalysts on the Horizon--Reiterate STRONG BUY (1) Investment Rating
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Date: 06/22/1999 EPS 1998A 1999E 2000E
Price: 27.0 1Q (0.16) (0.27)A NE
52-Wk Range: 61 - 5 2Q (0.29) (0.30) NE
Ann Dividend: 0.0 3Q (0.26) (0.30) NE
Ann Div Yld: 0.00% 4Q (0.26) (0.29) NE
Mkt Cap (mm): 537 FY(Dec.) (0.97) (1.16) (0.67)
3-Yr Growth: 100% FY P/EPS NM NM NM
CY EPS (0.97) (1.16) (0.67)
Est. Changed No CY P/EPS NM NM NM
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Industry: MEDIA
Shares Outstanding(Mil.): 19.9
Return On Equity (1998) : 0.0%
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HIGHLIGHTS:
--We had the opportunity to meet with Digital River management this week,
and feel that the recent stock weakness represents an attractive entry
point for growth-oriented investors.
--Digital River is focusing its CommerceBridge efforts on top-quality
Fortune 500 accounts, which should serve to build a strong referenceable
account base.
--The Company is also building a solid direct marketing capability in an
effort to step up its efforts on driving end customer acquisition,
conversion and retention among its client base.
--We feel there is upside to our software client projections in coming
quarters, as the Company has plenty of opportunities in signing up
publishers for both ESD hosting and publisher partnerships.
--Over the next 1-2 months, we anticipate several major announcements from
Digital River that will significantly expand the story, and serve as
stock catalysts for the Company.
--We reiterate our 'Strong Buy' (1) investment rating on these shares.
DETAILS:
We had the opportunity to meet with Digital River management this week, and
feel that the recent stock weakness represents an attractive entry point
for growth-oriented investors. Based on our conversations, we feel that
the Company is poised to enjoy strong momentum in coming quarters, as it
enhances its core ESD service offering, and scales its emerging music and
CommerceBridge business initiatives. Our thesis is intact, the Company is
firing on all cylinders, and we are in front of several major
announcements.
COMMERCEBRIDGE - A FLIGHT TO QUALITY
Digital River is focusing its CommerceBridge efforts on top-quality Fortune
500 accounts, which should serve to build a strong referenceable account
base. We feel that the Company will continue to build its CommerceBridge
account base before we begin to see major announcements in this unit. This
move to the quality of accounts, as opposed to the quantity, is a strategy
that we see will drive higher transaction volumes longer term. Moreover,
we feel that the CommerceBridge business is equally as large a business-to-
business e-commerce opportunity as it is a business-to-consumer e-commerce
opportunity.
BUILDING A DIRECT MARKETING CAPABILITY -- DEEPENING RELATIONSHIPS
The Company is also building a solid direct marketing capability in an
effort to step up its efforts on driving end customer acquisition,
conversion and retention among its client base. We feel that this should
drive client loyalty and mitigate churn longer term. The Company is
deepening its account relationships and broadening its value proposition.
SOFTWARE PUBLISHERS REPRESENT TREMENDOUS OPPORTUNITY
The Company continues to build out its core ESD service and acquire new
software clients. We feel that there is upside to our software client
projections in coming quarters, as the Company has plenty of opportunities
in signing up publishers for both ESD hosting and publisher partnerships.
We are forecasting 1,947 publisher clients by the end of 1999, up from
1,677 in 1Q. We note that we are not looking for much upside to our 1999
retailer client projection of 1,576 as Digital River has already attracted
many of the key accounts on this front. We note, however, that there still
are several PC retailers which have not fully established Web businesses at
this point, which represent an opportunity for Digital River.
MULTIPLE CATALYSTS ON THE HORIZON - REITERATE STRONG BUY (1) INVESTMENT
RATING
Our meeting yesterday with Digital River management reminds us why we feel
that Digital River represents a core long-term holding in the e-commerce
space and one of our favorite small-cap investment ideas. In our opinion,
the Company is truly establishing itself as the dominant player in the
delivery of digital content over the Internet. Moreover, we feel that
there are several catalysts on the horizon which should enhance investor
enthusiasm and fuel stock price appreciation, including:
(1) additional CommerceBridge announcements,
(2) the potential launch and release of new ESD and product management
offerings over the next several months, and
(3) solid 2Q 1999 results (which should be once again ahead of our
expectations).
Over the next 1-2 months, we anticipate several major announcements from
the Company that will significantly expand the story.
We continue to believe that Digital River's superior business-to-business e-
commerce service model will command both a premium long-term operating
margin and should command a premium revenue multiple. We maintain our 12-
month price target of $65 which is based on a 12x multiple of our 2000
revenue forecast of $100.0 mm. We reiterate our "Strong Buy" (1)
investment rating on these shares.
Additional Information Available Upon Request
Deutsche Bank Securities Inc. maintains a net primary market in the common
stock of Digital River Inc.
Within the past three years, Deutsche Bank Securities Inc. or its wholly
owned subsidiary, BT Alex. Brown Incorporated, has managed or comanaged a
public offering of Digital River Inc. |
