Digital River Flows Upstream

Stock quotes in this article: DRIV , MSFT , SYMC , ADSK , EBAY , TMIC  

In addition, a similar contract that Digital River has with Symantec (SYMC Quote), which had been slowed down in the fourth quarter because of integration snafus, should start to kick in during the current quarter, Digital River said in its earnings call.

The company also signed new agreements with companies such as ACD Systems, Fisher-Price and Skype, in addition to longer-term customers such as Autodesk , eBay and Trend Micro (TMIC Quote).

One remaining concern for Digital River is how fast it can reinflate margins that flagged in 2006 because of the company's expansion abroad. Building out its network caused gross margins to fall to 88% last year from 88.7% in 2005.

Similarly, expenses for SG&A and R&D both ballooned faster than sales, driving the 2006 pretax income margin down to 29.1% from 32.4% in the previous year.

In the fourth quarter, pretax margin was 29.9%. That was above the previous quarter's margin of 27% but below the year-ago figure of 32.9%.

If the promise of growth from Microsoft, Symantec and Skype pan out, the company's income statement should look more impressive this year. Provided the company can also steer clear of any ugly encounters with the SEC, investors may feel better about floating their boats on Digital River again.

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