The Chart Is...

The answer to the Name That Chart post is...

Digital River.

The reason the stock is down is complicated, but Eric in the comments pretty much nailed it.  Wall Street is concerned about Digital River's future earnings because Symantec is Digital River's largest customer and Symantec makes anti-virus products.  The concern is that Microsoft will be taking away sales of Symantec's products with their own.

In my opinion, this is a problem of Digital River's own making.  I believe that Wall Street does not understand what Digital River does, and Digital River likes it that way.  If you look at the things stock investors see about a company, you would not know that Digital River has anything to do with shareware.   
While we in the shareware industry see Digital River as the dominant company in the entire industry, I suspect that most shareholders in Digital River don't even have the slightest idea that the company is even involved in the shareware industry.  For example, the company profile on Yahoo says:

Digital River, Inc. provides e-commerce outsourcing solutions. The company offers e-commerce site development and hosting, site merchandising, order management, fraud prevention, denied parties screening, export controls, tax management, digital and physical product fulfillment, multilingual customer service, email marketing and advanced reporting, and Web analytics services.

Shareware, or any other word that might even hint at what kinds of companies are Digital River's customers, is not even mentioned.  You would not know that of the many thousands of Digital River customers, the overwhelming majority are shareware companies.  On their own about page, they list only Symantec, Motorola, 3M, H&R Block, Novell, Autodesk, ACT! and Staples.com as customers.  Shareware, or even any hint of "small software companies" are completely left out.  The word shareware does not appear in their annual report (10K). As far as Wall Street is concerned, the mass of companies that make up the bulk of Digital River's customers simply don't exist.

I often read Digital River's SEC filings and sometimes listen to their conference calls, and it is astounding to me how they manage to pull this off.  They simply do not talk about what they actually do.

Digital River is essentially the eBay of software.  They provide the ecommerce tools that thousands of small companies use to sell software.  Most of this software is marketed as shareware.  Their earnings are therefore dependent on the software sales of many thousands of small companies with all sorts of different kinds of software products.  The only company that is mentioned in their 10K is Symantec, which accounted for 27% of their revenue in 2004.  27% is a lot, but that leaves 73% that is not Symantec. 

The unfortunate by-product of having one large customer is that their stock trades almost entirely on the fortunes of that one customer.  Everything else is pretty much ignored.  If they didn't have that one dominant customer, their stock could trade on the fortunes of an entire industry of small software companies, which would be considerably more stable.  But it would also be a lot less likely to generate big news and hot momentum, which I suspect is what the management of Digital River wants.  They want their stock to be a huge momentum high flyer.  But the cost of having huge news driven stock run ups is the downside when the news is bad.  And that's what Digital River is experiencing now.

Note: I do not own any shares of DRIV.  My company has been a customer of Digital River's for 8 years.

Comments

[Factory]

Hmm what I get from this article is that one should avoid the stock market if one is not able to understand it. I'm sure if I had stock in DR that I'd be thinking "WTF?".

[David Michael]

I switched away from using DR as my primary payment processor at the beginning of this year. I knew they were big (having absorbed so many other payment processors), but I had never realized they were a publicly traded stock.

I find it somewhat encouraging that a company was able to go public on a percentage of the earnings of small software developers.

Hmm. I guess you could take DR's annual gross revenue, subtract out the 27% that is Symantec, multiply the remainder by a factor of 6 to 8, and have an idea of the size of the shareware industry.

-David