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Digital River Doubles Profit

The company easily beats analysts' earnings estimates.

Updated from 5:14 p.m. EST

The fourth quarter may have brought a mixed bag of successes and disappointments for e-commerce companies, but judging from Wednesday's earnings report from

Digital River


, the quarter was far better for purveyors of e-commerce software.

Digital River helps companies like







H&R Block





sell their services and goods on the Web by handling everything from hosting sites on their proprietary servers to processing transactions and guarding against fraud. Business is booming, with Digital River's fourth-quarter revenue rising 77% from the year-ago period to $48 million. Revenues were up 22% from the previous quarter.

That helped GAAP earnings more than double to $12.8 million, or 33 cents a share, up from $5.6 million, or 16 cents a share, a year ago. On a pro forma basis, earnings rose to 43 cents a share from 20 cents.

Analysts were expecting a good quarter, but not that good. Digital River was forecast to post a GAAP profit of 27 cents a share, a pro forma profit of 35 cents a share and revenue of $42.6 million. It marked the fifth straight quarter that Digital River beat the Street's estimates.

In a tech earnings season that has been as tepid as this one, that kind of surprise made for excellent news. Digital River's stock, which closed the regular trading session up 7.5% at $36.26, was trading another 7.6% higher at $39.

Joel Ronning, Digital River's CEO, attributed the robust growth to the company's expansion into international markets and new offerings to existing customers. "Things have accelerated tremendously in the past six months. More of our clients are willing to try a more expensive product," Ronning said in a conference call. "A year ago, we were giving advice and doing a lot of fine tuning. Now a lot of large companies are giving us their budgets and saying, 'Okay, just do it. You guys know how to do this better than we do.' Obviously, the more control we have over this the better we do."

For the full year, revenue rose 52% to $154.1 million in 2004, while the GAAP profit rose to $35 million, or 96 cents a share, from $17.1 million, or 52 cents a share. In other words, Digital River's profit in the final quarter of 2004 was more than two-thirds of its profit for the entire year of 2003.

Digital River also increased its revenue guidance for 2005 to $195 million, up from its previous guidance of $188 million and a GAAP profit of 93 cents a share from the previous guidance of 90 cents a share. For the first quarter, the company is calling for sales of $48.5 million and a profit of 30 cents a share.