Netflix's Profit Surprises as Firm Gains Wider Audience

The Los Gatos, Calif.-based company also reversed forecasts of a loss for the year and now expects to post a sizable profit. For the quarter, Netflix earned $5.68 million, or 9 cents a share, up from $2.89 million, or 4 cents, a year earlier.

Netflix's results underscore the strength of the burgeoning online rental business, in which customers receive through the mail DVDs they rent via the Internet. Netflix's success has cut into business at video rental giant Blockbuster Inc., which recently started its own online business to counter Netflix.

The Netflix report surprised analysts, who had predicted a second-quarter profit of 1 cent a share, according to a survey by Thomson First Call.

Netflix's stock climbed to $18.75 after hours after gaining 56 cents to $16.96 during regular trading.

Revenue for the quarter rose 37% to $164.5 million from $120.3 million a year earlier. Sales were a shade more than what analysts had predicted.

"I don't think we have ever felt better about the business than we do today," Netflix Chief Financial Officer Barry McCarthy said during a conference call with analysts.

Netflix executives also said they were reversing earlier forecasts that the company could lose as much as $15 million this year. They now expect a profit of $2.4 million to $11.9 million.

That reversal is particularly surprising after Blockbuster entered the online DVD rental market last year with an aggressive marketing campaign. Online powerhouse Amazon.com Inc. has launched a similar service in England, which some analysts believe will lead to the launch of a similar U.S. operation.

Netflix announced in May that it would take over the online rental operation of retailer Wal-Mart Stores Inc. after it was unable to make a significant dent in Netflix's business. Netflix executives said the alliance had little effect on second-quarter earnings and had added only about 100,000 subscribers.

Despite increased competition from Blockbuster, Netflix spent less than expected fending off the competition, which boosted earnings.

The company ended June with 3.2 million subscribers, a 53% increase over a year earlier. Industry estimates have put Blockbuster subscriptions at about 1 million.