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Gateway and e-commerce services provider Digital River Inc. on Monday joined some other payments companies that have experienced the wrath, or panic, of investors on news that their relationship with their largest customer was threatened. Shares of Minnetonka, Minn.-based Digital River plunged 22.7%, falling $5.80 to close at $19.71, after the company posted a regulatory filing saying it had extended the deadline for Microsoft Corp. to declare its intentions about extending the expiration date of a distribution agreement between the two companies dating back to 2006.
Digital River hosts the Microsoft Store online site, which sells Microsoft and third-party software and consumer electronic goods worldwide. Revenues from the Microsoft relationship accounted for 32.5% of Digital River’s 2013 revenues, according to Digital River’s latest annual report. With total revenues of $389.7 million last year, the Microsoft relationship thus is worth about $127 million to Digital River. The current contract expires March 1, 2015, according to the report.
It’s not clear what may be behind Microsoft’s apparent stalling on whether to renew with Digital River, which extended the original deadline for notice from Dec. 1 to Dec. 19. At least one Wall Street news publication speculated that Microsoft could be taking its time in order to extract concessions from Digital River. Neither company responded to Digital Transactions News’ requests for comment.
The uncertainty comes at a sensitive time for Digital River. The company announced Oct. 23 that it had a deal to be acquired by an investor group led by Siris Capital Group LLC for $840 million. How the possible loss of Digital River’s largest customer would affect that pending deal could not be immediately determined.
Two other prominent payments companies, wire-transfer provider MoneyGram International Inc. and prepaid card services provider Green Dot Corp., have encountered troubles stemming from an over-dependence on a single customer. Both MoneyGram and Green Dot get a significant portion of their revenues from mega-retailer Wal-Mart Stores Inc.
Dallas-based MoneyGram, which had provided in-store U.S.-to-U.S. wire transfers for Wal-Mart customers, reported a 57% decline in such transactions in the third quarter. The dropoff was the result of Wal-Mart last April replacing MoneyGram with Leawood, Kan.-based Euronet Worldwide Inc.’s Ria money-transfer unit as its provider for domestic wire transfers of up to $900. Wal-Mart accounted for 28% of MoneyGram’s fee and investment revenue last year.
Pasadena, Calif.-based Green Dot has been even more dependent on Wal-Mart: the retailer accounted for 62% of revenues last year. Green Dot felt the squeeze when Wal-Mart lowered commissions it pays on Green Dot prepaid cards for Wal-Mart customers, and when the retailer added American Express Co. as a prepaid card partner.
Green Dot in the past two years has tried to expand beyond Wal-Mart with new products such as its GoBank mobile-banking service, and it apparently is having some success. Revenues generated through the Wal-Mart relationship declined to 51% of the total in 2014’s third quarter, according to a recent Green Dot regulatory filing. Green Dot’s three other largest retail distributors brought in a combined 24% of revenues.
