Netflix Shares Slide as Subscriber Goal Falls Short

Netflix has hit a milestone: its streaming video service now has 25 million subscribing households in the United States, reaching nearly a third of all the homes that have broadband.

But the service isn't adding subscribers fast enough to satisfy investors or its own forecasts. On Tuesday, the company's third-quarter earnings were met with disappointment on Wall Street; its stock declined sharply in after-hours trading.

Netflix's third-quarter revenues of $905 million, up from $822 million in the same quarter last year, were in line with estimates. But its United States streaming subscriber total of 25.1 million, while up from 21.4 million in the same quarter last year, was weaker than expected. Netflix had expected to end the quarter between 24.9 million and 25.7 million such subscribers.

Netflix now expects to end the year between 26.4 million and 27.1 million streaming subscribers, thanks to the usual holiday season lift. Earlier it had expected to sur pass 28 million.

In a letter to shareholders, the Netflix chief executive, Reed Hastings, and the chief financial officer, David Wells, emphasized that subscriber satisfaction was “very high.” They cited a record high level of time spent viewing per subscriber in the third quarter, achieved, they said, through improvements to “our content and member experience.”

The company, which reported a loss in the first quarter because of international expansion plans but returned to profitability in the second quarter, stayed that way in the third, with a profit of about $8 million, or 13 cents a share, compared with $62 million, or $1.16 a share, for the third quarter last year. In its international markets, including Canada, Britain and Latin America, Netflix gained 690,000 subscribers in the quarter, on the high end of its forecast.

“Our aggressive investments today in international expansion have laid the foundation f or building long-term profitable franchises in these markets, just as we have already done in Canada,” Mr. Hastings and Mr. Wells wrote.

The men reiterated their belief that HBO, the premium cable channel, is Netflix's chief competitor. HBO provides cable subscribers with an app called HBO GO for video streaming.

In northern Europe it is starting a Netflix-like service, bypassing cable companies; given that Netflix expanded to the same countries last week, “this will be the first test of our relative strengths in stand-alone subscription video-on-demand,” Mr. Hastings and Mr. Wells wrote. “We think it will make strategic sense eventually for HBO to go direct-to-consumer in the U.S., and become more of a competitor to Netflix; so, that is our operating assumption, and we are looking forward to competing in the Nordics.”

Netflix stock, which closed at $68.22 on Tuesday, dropped about 16 percent after earnings were announced, marking the third quarte r in a row when the stock was hammered in after-hours trading after warnings of slower-than-expected growth.