Digital River to Cut Jobs, Offices After Tough Quarter

The company’s Twin Cities work force and locations will reportedly not be affected.

After reporting a fourth-quarter loss of $200 million, or $6.11 per share, Digital River announced plans to close offices and cut an unspecified number of jobs this year.
The company plans to close three offices—located in Germany, Chicago, and Lincoln, Nebraska—and four of its eight data centers, company officials said during an earnings call late Wednesday. The Pioneer Press reported that the company’s two Twin Cities-area data centers will remain in operation. Digital River’s local work force, including the 700 employees who work at its headquarters, will reportedly not be affected by job cuts.
The company, which has roughly 1,400 employees across offices in United States, Asia, Europe, and South America, did not specify how many positions it plans to eliminate in the coming year.
“We’re working to streamline processes and drive efficiency throughout the organization,” Tom Donnelly, president and chief operating officer of Digital River, said during the earnings call.
Digital River makes and manages e-commerce sites for online retailers, including makers of software, video games, and electronics.
Donnelly said that shuttering data centers is part of the company’s plan to move most of its technology to the cloud. The company also plans to change its business model and will now offer clients an a la carte menu of services as opposed to bundling all its services into one package.
The company said that most of its $200 million loss during the quarter that ended in December was due to a $175.2 million goodwill impairment charge related to past acquisitions. It posted a profit of $5.9 million in the same quarter a year earlier. Meanwhile, revenue for the fourth quarter of 2012 fell 9.5 percent to $101.3 million.
The company said that earnings were hurt because it was not involved in a big video game launch this holiday season. The company ran the e-commerce site of a blockbuster game during the 2011 holiday season, which brought in $7 million in revenue, it said.
For the full year, the company’s loss totaled $195.9 million, compared to a profit of $17.2 million in 2011. Its 2012 revenue fell 2.9 percent to $386 million.
In November, Joel Ronning, a serial entrepreneur who has led the company since its founding in 1994, abruptly stepped down from his role as CEO. Ronning served as chairman through the end of last year, at which point he retired from the company's board.
At the time, Daniel Ives, an analyst with FBR Capital Markets in New York, told the Star Tribune that Ronning’s departure “was a step in the right direction, because the company continues to face challenges.”
Ives told the Minneapolis newspaper that the past few years “have not been good for the company or its investors” due to “a series of missteps in execution and strategy” and said that most investors will believe that “fresh blood coming into the company at this point is positive.”
In 2010, the company’s profits dropped a whopping 68 percent—from $49.7 million to $15.7 million. It rose 9 percent in 2011 to $15.6 million. Revenue, meanwhile, fell 10 percent in 2010 to $363 million and rose 9.6 percent in 2011 to $398 million.
During the 2012 third quarter that ended in September, the company’s loss totaled $734 million and revenue fell 3.1 percent to $91.6 million.
The company is currently being led by interim CEO Thomas Madison.
Digital River is among Minnesota’s 50-largest public companies based on revenue. It is also the state’s largest Web development firm based on revenue from Web projects. Shares of the company’s stock were trading down 4.9 percent Thursday morning at $13.42.
Meanwhile, another local Web developer, Bloomington-based The Nerdery, recently announced plans to cut 24 jobs, or 5 percent of its work force, due to slumping profits.