UPDATE 3-Netflix profit beats Street view; shares jump

(Recasts, adds CEO comments, analyst)

By Sue Zeidler

LOS ANGELES, July 25 (Reuters) - Netflix Inc (NFLX.O: Quote, Profile, Research, Stock Buzz) shares rose on Friday as the by-mail DVD company's better- than-expected second-quarter profit and raised 2008 forecast eased the concerns of analysts about higher costs related to its expansion into providing streamed content.

Netflix also said gross margins will rise slightly even as it spends more for Web-delivered content and it expects to soon start testing price increases for Blu-Ray rentals.

"Our goal is to materially increase subscribers and earnings per share every year as we expand into streaming and this quarter we continued to make excellent progress toward that goal," Chief Executive Reed Hastings said on a conference call with analysts.

Netflix, which competes primarily with Blockbuster Inc (BBI.N: Quote, Profile, Research, Stock Buzz), but also faces challenges from online video providers such as Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) and Amazon.com Inc (AMZN.O: Quote, Profile, Research, Stock Buzz), said second-quarter net income grew to $26.6 million, or 42 cents per share, from $25.6 million, or 37 cents a year earlier.

Excluding special items, profit was 45 cents a share, beating analysts' average forecast by 4 cents, according to Reuters Estimates. Revenue rose 11 percent to $337.6 million.

On the call, Hastings said Netflix did not plan to enter the pay-per-view segments where Apple, Amazon and others focus, but will continue focusing on integrating its streaming software into Blu-Ray players, game consoles, DVD players and stand-alone Web devices.

After months of speculation, Netflix announced a deal this month to let subscribers watch streamed movies and TV shows on Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) Xbox 360 game consoles this fall. The Microsoft tie-up followed two other deals with set top box makers -- Roku and LG Electronics Inc (066570.KS: Quote, Profile, Research, Stock Buzz) -- in its quest to bring streamed content to the television.