Netflix Sees a Goose Egg

It says it may not add any subscribers in the second quarter.
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Netflix (NFLX) - Get Report plunged 10% early Wednesday after the online movie mailer said it may not add any subscribers in the second quarter.

Citing hefty competition, the Los Gatos, Calif., DVD sender cut second-quarter and full-year guidance and set a plan to buy back $100 million in stock.

Netflix made $10 million, or 14 cents a share, for the first quarter ended March 31, up from the year-ago $4 million, or 7 cents a share. Revenue rose 36% from a year ago and 10% sequentially to $305 million, in line with analysts' expectations.

Excluding certain costs, latest-quarter earnings were 16 cents a share. Analysts were looking for a 16-cent-a-share profit on sales.

"Our first-quarter results were in line with our guidance, but at the low end of the range, reflecting the impact of increased competition," said CEO Reed Hastings. "Our business continues to grow and to generate profits, and we are pushing into online video to lead the next generation of movie viewing."

But Netflix warned that its second quarter will fall short of Wall Street's targets. The company predicts revenue of $303 million to $305 million, short of the $315 million Thomson Financial forecast. Netflix also offered a quarter-end subscriber forecast that suggests the company may not add any paying customers this quarter.

Netflix said it ended the first quarter with 6.8 million subscribers, up 40% from a year ago and 8% higher sequentially. But the company's forecast for second-quarter-end subscribers ranges from 6.7 million to 6.9 million.

Growth has slowed this year, the company said. Net subscriber additions in the first quarter were 481,000, compared to 687,000 for the same period of 2006 and 654,000 for the fourth quarter of 2006. Subscriber acquisition cost rose to $47.46 per gross subscriber addition from $38.47 a year ago and $44.31 for the fourth quarter of 2006. Churn, reflecting monthly customer defections, rose to 4.4% from 4.1% last year and 3.9% in the fourth quarter.

For the year, the company cut its revenue forecast to a range of $1.21 billion to $1.26 billion from the previous $1.25 billion to $1.3 billion.

Shares fell $2.27 to $21.69.