Media News

UPDATE 2-Netflix Q3 profit up, but investors want more

* Q3 EPS 52 cents vs Street view 45 cents

* Raises full-year subscriber and revenue forecasts

* Keeps fourth-quarter profit outlook unchanged

* Shares fall 5 pct after hours (Adds analyst, background, byline)

By Sue Zeidler

LOS ANGELES, Oct 22 (Reuters) - Netflix Inc NFLX.O posted a sharply higher quarterly profit, but its shares fell on disappointment the online DVD rental company did not exceed subscriber targets or raise its fourth-quarter earnings outlook.

Netflix, which has grown as traditional brick and mortar outlets such as Blockbuster Inc BBI.N struggled, ended the third quarter of 2009 with about 11,109,000 subscribers. The company had expected to finish with 10.9 million to 11.1 million users.

“People expect a lot from Netflix. They expected it to blow away subscriber numbers in the third quarter, but it really just came in at the high end of forecasts,” said Barton Crockett, an analyst with Lazard Capital Markets.

Net subscribers rose by 510,000 in the quarter compared with an increase of 261,000 for the same period of 2008 and an increase of 289,000 for the second quarter of 2009.

Shares of the company that offers DVDs via subscription and an online mailing service fell in after-hours trading to $47.05, after closing up about 3.7 percent at $49.63 a share on Nasdaq.

Netflix said net profit for the third quarter rose to $30.1 million, or 52 cents per share, from $20.4 million, or 33 cents per share, a year earlier.

Analysts on average had been expecting earnings of 45 cents per share, according to Thomson Reuters I/B/E/S.

“The numbers were a little better than expected, but the stock is probably down on profit taking after running up earlier in anticipation,” said Edward Woo, an analyst with Wedbush Morgan Securities.

For the fourth quarter, Netflix raised its revenue forecast to a range of $440 million to $446 million, up from $431 million to $445 million and roughly in line with Wall Street’s estimates of $442 million.

But it kept its earnings forecast in a range of $21 million to $26 million.

“They also kept their net income guidance unchanged for the fourth quarter, which suggests some cost pressure,” said Crockett.

Netflix raised its full-year forecasts, saying it expects 12 million to 12.3 million subscribers, up from a previous forecast of 11.6 million to 12 million, and revenues of $1.666 billion to $1.672 billion, up a tad from $1.65 billion to $1.67 billion previously forecast.

Analysts have cited Coinstar Inc's CSTR.O fast-growing DVD kiosk company Redbox business, which rents movies for $1 per night, as increasing competition for Netflix.

Various Hollywood studios have accused Redbox of depressing DVD prices and have tried to delay the availability of new releases to Redbox’s popular kiosks around the country.

Studio Time Warner Inc TWX.N has also indicated it wants better economics from Netflix. (Reporting by Susan Zeidler; editing by Andre Grenon)