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Netflix Light on Top

A revenue miss sends the stock lower.
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Shares of online DVD rental service


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dropped 4% late Wednesday as the company posted solid earnings but came up a little light on the top line.

The Los Gatos, Calif., company made $6.9 million, or 11 cents a share, for the quarter ended Sept. 30, down from the year-ago $18.9 million, or 29 cents per share. Excluding a legal settlement, net income was $10.1 million, or 15 cents a share.That's in line with the Thomson First Call analyst consensus estimate.

The earnings decline was largely due to high marketing expenses incurred as it battles with


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for market share.

Revenue rose 23% from a year ago to $174.3 million, a shade light of the $175 million Wall Street estimate. Subscribers rose 61% from a year ago to 3.5 million, and the company said churn, measuring monthly customer defections, declined to a company record low 4.3%.

"The third quarter provided a good view of the power and potential of the Netflix model, coupling strong subscriber growth with the cost benefits of our increasing scale," said co-founder and chief executive Reed Hastings, "Combining the best customer experience with the lowest costs is a powerful formula for success, and we expect that formula to deliver increasingly impressive results in the balance of 2005 and in 2006."

Netflix guided to a year-end subscriber count of 4.1 million, up from the previous 3.95 million, and revenue of $193 million. That's up from the company's previous $190 million and in line with the Thomson First Call estimate.

In after-hours trading Netflix shares were down $1.35 to $27.