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Netflix beats on earnings, but plunges after weak guidance

Netflix reported earnings on Monday that doubled analyst expectations, but shares fell in after-hours trading following light subscriber guidance.

The company posted first-quarter diluted earnings per share of 6 cents, compared to 5 cents per share in the year-earlier period. Revenue for the quarter came in at $1.96 billion, against the comparable year-ago figure of $1.57 billion. Analysts had expected Netflix to report Q1 earnings of about 3 cents per share on $1.97 billion in revenue, according to a consensus estimate from Thomson Reuters.

Yet despite the earnings beat, Netflix shares fell by more than 12 percent in after-hours trading after its results were announced —although they later pared some of those losses.

Traders and analysts pointed to Netflix's membership forward guidance in explaining that move, but the company actually topped subscriber expectations for the year's first quarter.

The company said it gained a net 6.74 million memberships — 2.23 million in the U.S. and 4.51 million internationally. Wall Street had expected on average that Netflix would announce a 4.36 million net gain in memberships internationally and 1.77 million net adds in the U.S., according to data from StreetAccount.

"We were incredibly excited to grow to over 81 million subscribers, it's an enormous quarter for us that way," Netflix co-founder and CEO Reed Hastings said during a Monday afternoon webcast. "Some of it was from our expansion around the world: It's 130 countries so there's quite a bit of variety.

Hastings added that he expects "over the next couple of years" many more international opportunities will arise as the company offers more content in local languages and accepts more forms of payment.

But looking ahead to the second quarter, Netflix said it expected 500,000 net domestic adds and a 2 million net international membership gain. Wall Street had expected 586,000 total domestic net adds, and 3.5 million internationally, according to StreetAccount.

In Netflix's Monday investor letter, the company suggested that some of its international net membership adds could have been pulled forward into the first quarter.

"International net adds are down sequentially both due to standard seasonality and our launch in 130 countries at very beginning of Q1 (so Q1 captured the initial surge of sign­ups)," the letter said.

Responding to a question about the lighter than expected second quarter guidance, Netflix CFO David Wells said during the webcast that "you haven't yet seen sort of a normalized pattern of growth" on a year-over-year basis because of staggered international roll outs.

"From our perspective we were super happy with the results of Q1 and we wanted in Q2 that to continue, and it is," he said, adding that the company is mindful of "large blooms of launches" last year and in the first quarter of this year which addressed "pent up demand."

While reiterating his "buy" recommendation, S&P Capital IQ media analyst Tuna Amobi told CNBC that his team was "a little spooked by the Q2 guidance."

"I thought the Q1 numbers came in pretty respectable, but we saw some margin compression," Amobi said. "What we're seeing with Netflix right now is the normal ebb and flow of content spending, so overall we think the thesis remains intact."

Barton Crockett, an analyst at FBR Capital Markets, told CNBC that he thinks 2016 is the "peak year for subscriber growth," and that is shown in the second-quarter guidance.

"You get the biggest pop when you launch in a new country internationally, and then you get a bit of an ease up," he said. "The data that we're tracking says that they're still in hyper-growth in emerging markets like Latin America, but they're starting to cool in the developed countries like the U.S., U.K., Canada — I think other developed countries will follow that road."

E-commerce juggernaut Amazon fired a shot at Netflix and competitor Hulu on Sunday, offering a stand-alone streaming service for the first time.

Amazon announced that customers could pay $8.99 a month to watch Amazon's Prime video streaming service instead of paying the $99 annual Prime membership fee. Netflix, meanwhile, charges $9.99 for a new standard membership.

"Netflix has had an incredible rise, but they need to be looking over their shoulder because there is an onslaught coming led by Amazon," Jonathan Rettinger, president of TechnoBuffalo, told CNBC after the earnings announcement. "Netflix has a lot to worry about over the next few months."

Crockett said he believes Amazon's involvement in the space "caps what Netflix can do on pricing."

"There are so many competitors and everyone is working hard to build the best content, and so we're seeing growth in the overall internet TV market ... and it's natural that everybody is coming in as they realize that the future is internet TV," Hastings said in response to a question about Amazon.

Netflix drew some ire online earlier this month for hiking existing users' rates to the current price scheme if they wished to maintain the standard — HD-available — package. The company, however, had telegraphed the hike extensively.

On the so-called "un-grandfathering" front, Netflix said Monday that more than half of its US members pay less than $9.99 (either $7.99 or $8.99) for its standard plan. The company said it plans to "phase out this grandfathering gradually over the remainder of 2016."

Netflix only expects "modestly increased churn" from the price increases, the shareholder letter said.

Beyond increasing prices, Netflix has also looked for growth by expanding its international subscription base. That may become a necessity, as some have warned it nears a saturation point in the U.S.

China, a key potential growth market for Netflix, remains an open question.

"On China, we are continuing discussions but have no material update on our approach or timing," the company said in its Monday letter. "Whatever we do will have only a modest financial effect in the near term."

—The Associated Press contributed to this report.