2:34pm

Mon October 24, 2011
Business

Netflix Loses 800,000 Customers In Third Quarter

Netflix's video subscription service lost 800,000 customers in the third quarter the biggest exodus in its history even as its earnings rose 65 percent.

The losses were larger than management had previously warned. The unwelcome surprise, contained in financial results released Monday, was compounded by a forecast calling for millions of Netflix Inc.'s DVD-by-mail subscribers to cancel the service in reaction to dramatic price increase that took effect last month.

The bad news bruised already battered stock as the shares plunged by more than 26 percent.

Netflix lost its luster among consumers and investors by raising prices as much as 60 percent in the U.S. and bungling an attempt to spin off its DVD-by-mail rental service.

The company, which is based in Los Gatos, California, ended September with 23.8 million U.S. subscribers, down about 800,000 from June. Netflix had predicted it would lose about 600,000 U.S. subscribers in a forecast released last month.

Management expects to gain U.S. subscribers in the current quarter, although Netflix didn't set a specific target. But a substantial number of Netflix's customers are expected to choose between renting DVDs through the mail or streaming video over high-speed Internet connections instead of paying for both services.

The biggest hit is expected on the DVD side, a service that Netflix has been de-emphasizing to save money on mailing costs as its spends more to license movies and TV shows for its Internet video library. The company expects its DVD subscribers to fall from 13.9 million as of Sept. 30 to as low as 10.3 million at the end of December.

Netflix earned $62.5 million, or $1.16, per share, in the third quarter. That compared to income of $38 million, or 70 cents per share, at the same time last year.

The performance topped the average earnings estimate of 96 cents per share among analysts polled by FactSet.

The company's revenue climbed 49 percent from the same last year to nearly $822 million about $9 million above analyst estimates.

Netflix shares shed $31.19, or more than 26 percent, to $87.35 in Monday's extended trading.

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