Digital River shares jump on upgrade

NEW YORK — Shares of e-commerce software service provider Digital River Inc. rose nearly 5 percent in afternoon trading after a JMP Securities analyst upgraded the stock to "Market Outperform" from "Market Perform," citing strong business fundamentals and strength in the company's digital download service business.

JMP analyst Sameet Sinha boosted his rating, and said in an interview with The Associated Press that the company should benefit as more consumers head online to download software.

"From a business fundamental perspective, I think the value proposition of digital distribution has gained momentum over the past years," he said, referring to the closures of electronics retailers such as Circuit City. "We've seen retail stores close … there's been a significant reduction in shelf space."

Digital River sells e-commerce products that allow consumers to download software and make online purchases. Its biggest client is Symantec, which makes a range of antivirus and security software programs.

Digital River's contract with Symantec ends in 2010, and Sinha said there had been concerns that Symantec would push for heavy pricing discounts when negotiations begin in the fall.

In recent years, Symantec has moved away from some of Digital River's offerings as it pushed its customers to auto-renew their software, instead of repurchasing it using Digital River's services.

Yet, Sinha said consumers dislike auto renewals, which should help Digital River going forward.

"That auto renewal piece, we think, is going to start slowing down," he said.

Shares of the Minneapolis-based company rose $2.04, or 5.64 percent, to $38.25 in afternoon trading.