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Netflix Added 1.7M Subscribers in Q1

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Netflix (s NFLX) continues to show strong momentum in subscribers and sales, driven by interest in the company’s streaming service. With the release of its first quarter earnings this afternoon, the subscription rental service posted both better-than-expected subscriber additions and earnings, and forecast continued momentum in the coming quarter.

Netflix added 1.7 million subscribers in the first quarter, ending with 14 million subscribers in total. That was up some 35 percent from the previous year’s total of 10,310,000 and up 14 percent from the 12,268,000 subscribers it had at the end of the previous quarter. Its subscriber numbers were also well above its own forecast, which called for 13.6 to 13.8 million subscribers by the end of the first quarter.

Revenue for the quarter was $493.7 million, which was 25 percent higher than the prior year’s first quarter sales of $394.1 million, and 11 percent above the $444.5 million it posted in the fourth quarter of 2009. The company recorded net income of 59 cents a share, compared to 37 cents a share in the first quarter 2009 and 56 cents a share in the fourth quarter. Non-GAAP net income was 65 cents a share, compared to analyst consensus forecasts of 54 cents a share.

Increased subscriber additions and better-than-expected earnings are in part being driven by increased interest and take-up of the company’s Watch Instantly streaming service. Netflix reported that for the first time more than half of its subscribers — 55 percent — used the streaming service for more than 15 minutes during the quarter. That’s up from 36 percent during the first quarter of 2009 and 48 percent for the fourth quarter.

As a result, Netflix posted record low subscriber acquisition cost in the quarter, at just $21.54 per subscriber, versus $25.79 a year prior and $25.23 in the previous quarter. Netflix subscribers also became more loyal, with churn dropping to 3.8 percent, versus 4.2 percent in the first quarter 2009 and 3.9 percent in the fourth quarter.

But the fun doesn’t end there. Netflix expects the momentum to continue, updating its forecasts to reflect the robust growth. The company expects to end the year with between 16.5 million and 17.3 million subscribers, up from its previous forecast of 15.5 million to 16.3 million. It also updated its revenue forecast for a year-end range of $2.11 billion to $2.16 billion (up from $2.05 billion to $2.11 billion), and earnings per share of $2.41 to $2.63, up from a forecast of $2.28 to $2.50.

Related content on GigaOM Pro: Slow and Steady, Netflix Pulls Ahead in Streaming Video (subscription required)