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Digital River shares surge on earnings, upgrades

The online services provider jumps more than 22 percent after it reports a strong quarter and says it expects to be profitable in the fourth quarter of 2001.

Shares of online services provider Digital River jumped more than 22 percent Wednesday after the company reported a strong quarter.

Shares of the Eden Prairie, Minn.-based company, which also sees profitability in the fourth quarter of 2001, surged $1.68 at $9.19 in early trading Wednesday on the Nasdaq. By the close of regular trading, the stock rose $1.44, or more than 19 percent, to $8.94.

Reporting after Tuesday's market close, the company came in with a net loss of $2.4 million, or 11 cents a share, excluding amortization of goodwill. The fourth-quarter loss was much narrower than the 21 cents a share estimate from a First Call survey of analysts.

The company also said that it expects to achieve overall profitability in the fourth quarter of 2001, when it projects earnings of a penny a share, excluding charges.

For fiscal 2001, Digital River expects to post a loss of 27 cents a share, before goodwill amortization, and projects 80 percent growth in revenue, in the range of $56 million to $57 million.

Wall Street's consensus target for the period is for a loss of 40 cents a share.

Analysts lauded the news Wednesday, with the company receiving upgrades from Deutsche Bank Alex Brown and Prudential Securities.

At Deutsche Bank Alex Brown, the stock was upped from "buy" to "strong Buy," estimates for 2001 were raised and the 12-month price target was increased from $11 to $14.

In a research note, analyst Jeetil Patel said the upgrade was based on the company's impressive results and outstanding expense controls, strength in its software services business, along with the potential for additional customers in the first half of the year and positive revenue outlook.

Analyst Mark J. Rowen at Prudential Securities was also bullish. Rowen raised the company's rating from "accumulate" to "strong buy," and maintained a $20 price target on the stock.

"In our opinion, Digital River was the proverbial dot-com baby that was thrown out with the bathwater," the analyst wrote in his research note.

The analyst pointed to strong software sales and a solid new client base as key factors underlying his optimism.

Rowen also said although the stock has jumped 166 percent since the start of the year, he believes there is still "significant room" for further upside.