Netflix's second quarter revenue light, stock bombs

Netflix's second quarter report wasn't the blockbuster that some folks were hoping for.

The company's quarter was strong. Netflix reported earnings of $43.5 million or 80 cents a share, on revenue of $519.8 million, up 27 percent from a year ago. Wall Street was expecting earnings of 71 cents a share on revenue of $524.4 million.

That revenue miss, however, got Netflix shares clubbed in after hours trading.

Simply put, Netflix was priced for perfection and sales didn't live up to expectations. Despite those lofty expectations, Netflix had solid results. The company's outlook for the third quarter was in line with expectations. Netflix projected earnings of 61 cents a share to 74 cents a share on revenue of $546  million to $554 million. Wall Street was expecting earnings of 67 cents a share on revenue of $551.7 million.

For the fourth quarter, Netflix said revenue will be $580 million to $596 million with earnings in a range of 58 cents a share to 73 cents a share. Wall Street was expecting earnings of 68 cents a share on revenue of $583 million. Netflix expects to end 2010 with 17.7 million to 18.5 million subscribers.

By the numbers:

• Netflix ended the second quarter with more than 15 million subscribers, up 42 percent from a year ago. In the second quarter, Netflix added more than 1 million subscribers.
• Gross margins in the quarter were 39.4 percent, up from 34.1 percent a year ago.
• 61 percent of subscribers watched Netflix online, up from 55 percent in the first quarter.
• Churn was 4 percent, up from 3.8 percent in the first quarter, but down from 4.5 percent a year ago.

Despite Netflix's rough outing, shares are well above year-ago levels.