Digital River Flows Upstream

"We believe DRIV has positioned itself to experience strong revenue and earnings growth over the next several years," wrote First Dallas analyst Preston Silvey in a research report on Friday. First Dallas doesn't engage in underwriting securities.

"With a growing number of software publishers distributing products online and growth in e-commerce both domestically and internationally, as well as the potential for future acquisitions, we continue to believe the outlook for DRIV is bright and expect long-term shareholders to be further rewarded," Silvey said.

The warm reception that the market gave to Digital River on Friday suggests that Wall Street may be extending a forgive-and-forget attitude toward companies that have strong earnings growth potential. Digital River's earnings report included a $2.2 million adjustment for noncash, stock-based compensation expense, but on Friday, analysts' focus was elsewhere.

In particular, many were watching how the company's recently expanded relationship with Microsoft (MSFT Quote) will boost its business. Digital River is supporting online downloads of Microsoft's new Vista operating system and its 2007 Microsoft Office applications.

"While the Microsoft download opportunity has only been live for about 9 days, management indicated that early signs have been encouraging," wrote DeutscheBank analyst Jeetil Patel in a note Friday. DeutscheBank has no underwriting relationship with Digital River.

"Feedback on the Office product [has] been positive, and we think revenues should start to ramp in the coming quarters," Patel said. "There is still significant opportunity beyond the Office/Vista products and could see some additional launches in the near future."