Digital River Teams with Skullcandy (DRIV) (MSFT) (SKUL)

Digital River, Inc. (DRIV) recently signed a global payments agreement with Skullcandy, Inc. (SKUL).

Skullcandy is set to develop a localized e-payment program in Europe by deploying the Digital River World Payments solution.

As per the agreement, Digital River will provide locally-preferred payment options for Skullcandy’s online stores in Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the UK.

Skullcandy plans to use Digital River World Payments solution and expand its online stores further in Europe along with delivering a user-friendly payment experience to its customers.

Through its Digital River World Payments subsidiary, Digital River offers a full range of payment processing services to clients. These services include multiple payment methods, fraud management, tax management, cloud-based billing and other payment optimization services.

The company has been on the lookout for contract renewals with its existing customers after having lost Symantec Corporation in 2010 along with forging relationships with new customers.

During the third quarter, Digital River signed many new and expanded agreements. The company extended its relationship with Siemens, Novell, Corel, Individual Software and Grass Valley. The company also signed multi-year extensions with two of its top clients, Trend Micro and Kaspersky.

In 2010, Digital River amended its agreement with Microsoft Corporation (MSFT) and thereby extended the term of the Microsoft Operations Digital Distribution Agreement till Oct 31, 2013.

For 2013, the company is likely to face some headwinds due to macroeconomic conditions, client attrition and additional necessary ramp up in investments to ensure an updated technology infrastructure. Digital River forecasts that overall softness in the economy, especially in Europe coupled with recent decline in PC sales will make it challenging to post an increase in revenues. The company saw some client attrition in 2012 and expects the same in 2013 along with a decline in supporting business revenue.

We continue to maintain our long-term Neutral recommendation on Digital River. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.