Netflix shares down after outlook disappoints

(Reuters) - Netflix Inc's quarterly revenue fell short of expectations and it warned that its red-hot subscriber growth would cool down in the third quarter, sending shares of the top video rental company down about 9 percent.

Second-quarter earnings surpassed expectations in rising to $68 million, or $1.26 a share, from $44 million, or 80 cents a share, in the period a year ago.

But Netflix's quarterly revenue -- and outlook -- set off alarm bells. Even though revenue rose 52 percent to $788.6 million, it fell short of the average analyst estimate of $791.5 million, according to Thomson Reuters I/B/E/S.

Surprising investors, it also cautioned that third-quarter revenue and earnings would come in below current expectations, largely because of what is shaping up to be a sharp slowdown in subscriber growth.

Netflix said it would essentially end the third quarter with the same number -- or only slightly more -- subscribers as it had at the end of the second quarter. The company blamed the development on a recent price hike, indicating that any new subscriber additions would be offset by customers canceling over the prospect of paying more for movie rentals.

Netflix "came into the quarter as Superman and it looks like they ran into a little bit of kryponite and lost some of their super power," said Barton Crockett, an analyst with Lazard Capital Markets.

Netflix shares fell 10.3 percent to $252.47 after closing at $281.53 in the regular session on Nasdaq.

"The shares are down because they had weak net additions and gross additions," said Brett Harriss, analyst at Gabelli & Co.

"It's too early to call on Netflix's future at this point. I have a 'sell' rating on the company based on its high valuation, but I'm not shorting it because it's still a great company," he added. "There's just not enough margin of safety to buy it here.

Previously, Netflix wowed Wall Street with big subscriber additions quarter after quarter, and shares tripled in the past year. Total subscribers at the second quarter's end were 25.6 million, up from 23.6 million in the previous quarter, the company said.