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Netflix Beats Expectations but Stock Plummets on Subscriber Concerns

Netflix
Justin Sullivan | Getty Images
Netflix

Netflix shares have plummetedafter hours, despite the fact that the top and bottom line both came in better than expected.

The DVD and streaming video service reported revenue of $870 million, three million more than Wall Street projected. And the company lost just 8 cents per share, compared to the 27 cent-per-share loss Wall Street expected.

Another bit of good news: the company is “forecasting a much earlier return to global profitability than anticipated,” with second quarter net income somewhere between a $6 million loss and an $8 million profit.

So why is the stock getting hammered?

It all comes down to the company’s streaming video subscribers and its forecast of slower growth.

The company’s streaming subscriber growth accelerated, with a net add of 1.74 million in the quarter, pretty much in line with projections. But it failed to hit the higher end of the company’s guidance, which many analysts hoped it would surpass. And the company expects growth to slow in the current second quarter—projecting the addition of at most 800,000 subscribers. This as the company warns that its DVD subscribers could decline at an accelerating rate—to as little as 8.95 million at the lower end of projections. (Get Netflix latest stock quote here.)

CEO Reed Hastings didn’t shy away from acknowledging its growing number of competitors. Hastings says it does watch Hulu “carefully” and “given Amazon’ssize and ambitions, we continue to track their progress carefully as well.”

Hastings says he’s watching these companies over his shoulder despite the fact that his subscriber numbers dwarf Hulu and Amazon’s . But Hastings reiterated the fact that he sees the biggest challenge coming from media giants and cable operators ‘TV Everywhere offerings.” In addition to HBO Go , Hastings citedComcast’s XFinity app. Hastings says he doesn’t see “any meaningful near-term impact on our business.” But it’s clearly a challenge he has his eye on.

Hastings took his attack on Comcast’s Streampix, first mentioned in a Facebook posting, to his investors. He says that Comcast is unfairly discriminating against Netflix’s app in a way that violates the tenets of “net neutrality.” If Comcast doesn’t raise its data cap and make it apply equally to different content apps, that could make it harder for Netflix to grow its streaming audience. (*Note: Comcast is the parent company of CNBC and NBCUniversal.)

After a lot of speculation about the success of Netflix’s investment in original content, the company revealed that its first original show “Lilyhammer” has driven millions of hours viewed and performs “in line with similar premium exclusive content” that it licenses.

On the earnings call we can expect international growth – and plans to add additional markets—to be a hot topic. The company said “the odds of us building a large, profitable business in Latin America are very good, but it will take longer than we initially thought.”

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.