DivX Shares Fall After Warning Over Split in Ad Deal With Yahoo

11/18/08Follow @bvbigelow

Shares of San Diego digital video provider DivX (NASDAQ: DIVX) fell more than 17 percent in early trading, hitting $4.53 a share shortly before noon ET, after DivX said its financial results would be hurt following Yahoo’s decision to breach a two-year advertising deal. In a regulatory filing last night, DivX said it had filed a lawsuit against Yahoo in California Superior Court in Santa Clara County, seeking damages and to enforce specific terms of the 2007 agreement.

“Yahoo’s decision to breach is unjustified given DivX’s fulfillment of its obligations under the agreement,” DivX CEO Kevin Hell said in the company’s statement. CFO Dan Halvorson said in the same statement that Yahoo’s action will have an immediate effect on the San Diego company’s fourth-quarter financial results.

DivX says its 2008 revenues are now expected to fall within a range of $90 million to $92 million, down from its previous estimates of $95 million to $97 million. The company lowered its non-GAAP earnings per share estimate by 9 cents—to 49 cents to 51 cents.

Yahoo told Reuters it has been working with DivX to restructure their previous agreement, but the two companies could not come to an amicable resolution.

“Yahoo is disappointed with DivX’s decision to pursue legal action rather than renegotiate this agreement,” said a company spokesman. “We intend to vigorously defend ourselves in court, but will reserve further comment until we’ve had an opportunity to review the suit.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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