Summary:

Netflix’s own goal of reaching seven million subscribers of its streaming service by the end of 2012 may have been a bit too optimistic: The company’s Q3 earnings reveal that it is going to miss that target unless some sort of miracle happens in Q4.

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Netflix is likely going to miss its own goal of adding seven million streaming subscribers in the U.S. by the end of this year: That’s one of the key takeaways from the company’s Q3 earnings report, which it released after the closing of the market Tuesday.

Netflix added 1.16 million domestic streaming subscribers during the third quarter, which brings the total number of added domestic streaming subscribers year-to-date to 3.43 million.

Netflix CEO Reed Hastings and CFO David Wells acknowledged in a letter to shareholders that the growth of domestic streaming subscriptions has slowed down when compared to 2010 (and they didn’t even bother to compare it to 2011, the year of the Quickster debacle), but remained confident that Netflix could eventually become 2-3 times as big as HBO in the U.S. They also pointed to the growing contribution of domestic streaming to the company’s bottom line as a sign that Netflix’s overall strategy is working.

Other key data points of the letter to shareholders:

  • Netflix generated $905 million in revenue in Q3, compared to $889 million in Q2 and $822 in Q3 of 2011. The company booked a net income of $7.7 million, up from $6.1 million in Q2 of 2012, but down from $62 million in Q3 of 2011.
  • International subscribers came in at 4.3 million, which is 0.7 million more than at the end of the previous quarter, and on the high end of the 3.9 million to 4.4 million that Netflix had forecasted.
  • DVD rentals are still a shrinking business for Netflix, but the subscirber losses in that segment have slowed down. 0.6 million subscribers cancelled the red envelope service in Q3, compared to close to 0.9 in Q2.
  • Subscriber engagement is up significantly: Netflix subscribers streamed over 3 billion hours of content in Q3, and viewing per member is up 30 percent year-over-year.
  • Competition: It’s worth noting that Netflix this time around pointed to Hulu as its closest over-the-top competitor, cautioning that the future of the joint-venture is unknown.
  • Netflix is sticking to its forecast that it will go likely back to losing money in the fourth quarter due to its recent expansion to Norway, Denmark, Sweden and Finland. The company is now forecasting a net loss of $13 million on the low end, with a net income of $2 million if things go really well.

Hastings and Wells will have another chance to shine a positive light on these numbers during the Netflix earnings call Tuesday afternoon. Check back in a few hours for additional coverage coming out of that call.

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