Netflix Earnings Drop 13%

Netflix Inc., the largest mail-order video rental service, said Thursday that its second-quarter profit fell 13% because marketing and fulfillment costs doubled as it signed up more subscribers. Netflix shares fell as much as 16%.

Net income dropped to $2.89 million, or 4 cents a share, from $3.31 million, or 5 cents, a year earlier, the Los Gatos, Calif., company said. Revenue rose 90% to $120.3 million from $63.2 million.

Netflix said two weeks ago that it had 2.09 million customers at the end of the quarter, 82% more than a year earlier.

Subscribers order movies on DVD on the Netflix website and receive them by mail. The company said marketing costs more than doubled to $20.5 million while subscription-fulfillment expenses rose 99% to $14.4 million.

“They’ve been gaining market share, but at the same time the competition is out there,” said Safa Rashtchy, an analyst at Piper Jaffray & Co.

Netflix shares fell 6 cents to $32 in regular Nasdaq trading and then traded as low as $26.56 in after-hours trading, after the company announced its results.

Excluding stock-based compensation, Netflix said it would have earned $7.03 million, or 11 cents a share. That fell short of the average estimate of 13 cents a share from analysts surveyed by Thomson First Call. Revenue topped the average estimate of $119.8 million.