Rise in subscribers help boost Netflix's profit by 4%

SAN FRANCISCO -- The Los Gatos, Calif.-based company said Friday that it earned $26.6 million, or 42 cents a share, from April through June, up from $25.6 million, or 37 cents a share, in the same period a year ago.

The average earnings estimate among analysts surveyed by Thomson Financial was 40 cents a share.

Revenue climbed 11% to $337.6 million to match analyst estimates.

Netflix shares were up 73 cents, or 2.7%, to $27.45 at midday trading.

The company ended June with 8.4 million subscribers, and probably would have had even more if it had advertised its service as vigorously as it usually does.

But management has decided to sacrifice some of its growth opportunities to ensure it keeps Wall Street happy with higher profits, Netflix Chief Executive Reed Hastings said during a Friday conference call.

As a result, Netflix trimmed its marketing expenses by $5 million, or 11%, from the same time last year.

Despite the cutback and a slowing economy, Netflix had far more success luring new subscribers than last year when it lost 55,000 customers during the spring — the only quarter that the company's service has shrunk during its nine-year history.

"We appear to be substantially unaffected by the negative economic climate," Hastings said.

Netflix could afford to spend less on advertising because its biggest rival, Blockbuster, has been promoting its online rental service less aggressively during the past six months.

But some analysts believe that is about to change now that Blockbuster has abandoned a takeover bid for electronics retailer Circuit City Stores and is preparing to expand its Internet presence with a pay-per-view online video service acquired last year from Movielink. In a sign that it could be gearing up for more growth, Blockbuster hired a new chief marketing officer just a few weeks ago.