October 24, 2011, 4:57 PM

Despite lots of angry subscribers, Netflix grew revenue in Q3

But from Q2 to Q3 the company also lost 805,000 U.S. subscribers.

Lead Photo

Netflix CEO Reed Hastings

In the wake of consumer backlash over a controversial change in pricing, revenue and profits were up for Netflix Inc. in the third quarter.

But the company also reported a decline in domestic subscribers of 3.3%, or 805,000, to 23,789,000 in Q3 from 24,594,000 in Q2.  Investors jumped on that troubling fact and sent the price of a share of Netflix stock sliding by more than 20% to $95.50 in afterhours trading.

For the quarter ended Sept. 30, Netflix, No. 13 in the Internet Retailer Top 500, reported:

  • Revenue increased 48.6% year over year to $822.0 million from $553.2 million.
  • The total number of subscribers increased 49.2% to 25,269,000 from 16,933,000 in the third quarter of 2010.
  • The total number of U.S. subscribers grew 41.6% to 23,789,000 from 16,800,000.
  • The total number of international subscribers increased 1013% to 1,480,000 from 133,000.
  • Net income increased 64.6% to $62.4 million from $37.9 million.

The third quarter was a tough one for Netflix after the company announced—and then quickly reversed—a decision to split into two separate units. In a terse posting on the Netflix corporate blog Oct. 10, CEO Reed Hastings said Netflix was canceling plans to remake Netflix into two divisions and rename its DVD and Blu-ray disk rental program as Qwikster

The company is bracing for more angry consumer reaction to its decision in July to eliminate a combination DVD-by-mail and unlimited streaming rental plan priced at $9.99 in favor of offering consumers the option to subscribe to either format for $7.99 each.

“We greatly upset many domestic Netflix members with our significant DVD-related pricing changes and to a lesser extent with the proposed and now canceled rebranding of our DVD service,” says Hastings. “In doing so we’ve hurt our hard-earned reputation and stalled our domestic growth.”

 For the first three quarters:

  • Revenue increased 47.8% year over year to $2.32 billion from $1.57 billion.
  • Net income increased 67.8% to $190.9 million from $113.8 million in the first three quarters of 2010.

Although sales and profits have grown for the year to date, Netflix is anticipating a tougher fourth quarter, says Hastings. “We think DVD subscriptions will decline sharply this quarter due to our price change,” he says.

In Q4, Netflix projects revenue to range from $841 million to $875 million and net income from $19 million to $37 million.

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