Netflix’s strategy is paying off

Stung by the recent success of rival Blockbuster Inc., online DVD rental pioneer Netflix Inc. battled back in the third quarter with lower prices that revived subscriber growth and catapulted its profit well beyond analyst expectations.

The news, released after Monday’s stock market closed, lifted Netflix’s stock price more than 13% in after-hours trading.

The Los Gatos, Calif.-based company said it earned $15.7 million, or 23 cents a share, for the three months ended in September. That represented a 23% increase from net income of $12.8 million, or 18 cents, in the same period last year.

The earnings blew past the average estimate of 15 cents a share among analysts surveyed by Thomson Financial. Revenue rose 15% to $294 million -- about $8 million above analysts’ average estimate.

Netflix’s third-quarter performance contrasted with the sobering forecast that it provided three months ago after suffering the first quarterly decrease in subscribers during its eight-year history.

With Blockbuster’s competing online service rapidly gaining ground, Netflix decided this summer to lower the prices on its most popular subscription plans by $1 a month.

Netflix’s marketing costs fell 17% in the quarter, or $49.2 million, while it added 286,000 customers to end September with 7.03 million subscribers.

Dallas-based Blockbuster, which ended June with about 3.6 million subscribers, is expected to update its customer growth Nov. 1, when it is to release third-quarter results.

After falling 23 cents to finish Monday’s regular session at $23.01, Netflix shares surged $3.11, or 13.5%, in extended trading.