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Netflix profit disappoints

Netflix customer Carleen Ho holds up DVD movies,
Netflix customer Carleen Ho holds up DVD movies, "Talladega Nights" and "Pirates of the Caribbean,' that she rented from Netflix at her home in Palo Alto, Calif. (Associated Press / The Spokesman-Review)

Netflix Inc. on Wednesday posted the highest first-quarter profit in its 8-year history, but the online DVD rental pioneer’s performance flopped on Wall Street.

Investors turned their thumbs down largely because Netflix had trouble attracting and retaining subscribers amid stiffer competition from Blockbuster Inc. during the first three months of the year.

To make matters worse, Netflix management warned its service may continue to be upstaged by Blockbuster through the remainder of the year. As a result, Netflix expects to finish 2007 with 600,000 to 700,000 fewer customers than the Los Gatos-based company had projected when the year began.

Those dreary developments overshadowed Netflix’s first-quarter profit of $9.9 million, or 14 cents per share, during the first three months of the year. That more than doubled from net income of $4.4 million, or 7 cents per share, at the same time last year.

Revenue rose 36 percent from last year to $305.3 million.

The letdown punished Netflix’s stock, which plunged $2.26, or 9.4 percent, to close Wednesday at $21.70 on the Nasdaq Stock Market. Netflix tried to bolster its shares by announcing plans to buy back $100 million worth of stock through the rest of the year.

EBay Inc. reported Wednesday that first-quarter profit surged 52 percent, trouncing Wall Street expectations thanks to big-spending shoppers overseas and scorching performance of its PayPal electronic transaction division.

Despite lackluster growth in the total number of listings on the world’s largest online auction, eBay earned $377.2 million, or 27 cents per share, for the three months ended March 31. It earned $248.3 million, or 17 cents per share, in the year-ago period.

First-quarter revenue totaled $1.77 billion, up 27 percent from $1.39 billion a year ago.

Excluding charges unrelated to ongoing operations, eBay earned $460.5 million, or 33 cents per share, up 34 percent from the same quarter last year, when eBay earned $342.9 million, or 24 cents per share.

EBay shares fell 75 cents, or nearly 3 percent, to close Wednesday at $34.45 on the Nasdaq Stock Market. After the report was released, shares gained $1.15 in after-hours trading.

Kraft Foods Inc., the world’s second-largest food and beverage maker, posted a 30 percent decline in first-quarter earnings Wednesday in reporting results for the first time as an independent company.

Kraft, which was spun off at the end of the quarter by majority shareholder Altria Group Inc., did manage to beat Wall Street’s expectations despite continuing challenges in its turnaround effort.

Net income for the January-March quarter was $702 million, or 43 cents per share, down from $1 billion, or 61 cents per share, for the same period in 2006.

Kraft, whose products include its namesake cheeses, Oscar Mayer hot dogs, Maxwell House coffee and Oreo cookies, said earnings excluding certain items were 44 cents per share. That was 2 cents higher than the consensus estimate of analysts polled by Thomson Financial.

Revenue rose 5.7 percent to $8.6 billion from $8.1 billion a year earlier, topping the Wall Street forecast of $8.41 billion.

Yahoo Inc.’s comeback story took a $5 billion step backward Wednesday as the Internet portal’s stock price plummeted by nearly 12 percent in response to a discouraging first-quarter earnings report.

With both its profit and revenue missing analysts’ estimates for the first three months of the year, Yahoo left Wall Street wondering how much longer it will take the Sunnyvale-based company to regain its financial momentum after stumbling through much of 2006.

Many investors apparently aren’t waiting around to find out, especially with Internet search leader Google Inc. maneuvering to extend its lead in the lucrative online advertising market.

Yahoo shares shed $3.78, or 11.8 percent, to close at $28.31 on the Nasdaq Stock Market. The sell-off erased about $5 billion in shareholder wealth.

Motorola Inc. posted its first quarterly loss since 2004 on Wednesday as dismal sales continued to vex the struggling cell phone maker. Worse still, the company said its misfortunes would continue through the second quarter.

Blaming disappointing sales of mobile phones, as well as expenses to cover a legal settlement, restructuring efforts and an acquisition, the telecommunications equipment maker said it lost $181 million, or 8 cents per share, in the first three months of 2007. That compares with a profit of $686 million, or 27 cents per share, during the same period a year earlier.


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