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Netflix Grows But Takes Settlement Hit

29 Sep, 2005 By: Holly J. Wagner

Netflix Inc. will grow its subscriber base but still expects to report lower net income in the third quarter after paying a settlement in a class action lawsuit alleging false advertising.

Executives expect the company to end the quarter with between 3.59 million and 3.61 million subscribers, revised up from 3.35 million to 3.50 million. Revenue projections were narrowed from a range of $172.5 million to $176.5 million to the $173.5 million to $175.5 million range.

The company expects to shell out $3 million to $4 million to settle the Frank Chavez v. Netflix consumer class action lawsuit, which alleged false advertising, unfair and deceptive trade practices and breach of contract regarding DVD delivery times. The court must still approve the settlement.

Including the non-recurring settlement expenses, the company revised net income guidance to $2.5 million to $5.3 million, from $4.5 million to $8 million. Excluding the settlement payout, net income is expected to be $6.5 million to $8.3 million for the quarter.

“Our business continues to perform exceptionally well, with rapid subscriber growth and operating efficiencies enabled by market leadership,” said CEO Reed Hastings.

Netflix will host a webcast to discuss its third quarter 2005 financial results at 3 p.m. PST Oct. 19.

Despite the settlement announcement, Netflix stock rose 23 cents in midday trading, to $24.47.

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