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Netflix's subscriber growth holds key to 3Q report

SAN FRANCISCO (AP) — Netflix's third-quarter results will give investors a sense of how well the video subscription service is faring against tougher competition at the same time it's paying for an expansion beyond the U.S.

WHAT TO WATCH FOR: Subscriber growth is almost always the most important part of Netflix's quarterly updates. It probably won't any different when the numbers for the July-through-September period come out after the stock market closes Tuesday.

The quarter covers a traditionally slow period for Netflix because summer's longer daylight hours and vacations make it tougher to get people to pay extra to watch movies and old television series. Netflix executives also expected the telecast of the Summer Olympics during late July and early August to discourage households from buying another entertainment package during that two-week period.

Despite those challenges, Netflix predicted it would gain 1 million to 1.8 million more subscribers to its main line of business — streaming video to televisions and other devices with high-speed Internet connections. Based on those projections, Netflix should have ended September with 24.9 million 25.7 million U.S. subscribers to its $8-per-month streaming service.

The company expected to lose 600,000 to 900,000 subscribers to its DVD-by-mail rental service, which has been steadily declining since Netflix began charging a separate fee for that option last year.

The third-quarter growth will probably determine whether Netflix needs to revise its goal of adding 7 million streaming subscribers in the U.S. this year. Several analysts suspect Netflix will have to lower its target. Sterne Agee analyst Arvind Bhatia thinks Netflix's stock will plunge if the full-year goal for subscriber growth is revised below 6 million.

Netflix also will discuss the progress of its costly international expansion. The push outside the U.S. resulted in a rare first-quarter loss this year and depressed second-quarter earnings. Netflix just launched its streaming service in Sweden, Denmark, Finland and Norway, adding those Nordic markets to an international smorgasbord includes Canada, the United Kingdom, Ireland and dozens of Latin American countries.

The big question hovering over Netflix whether the video licensing and marketing expenses piling up outside the U.S. will saddle the company with another loss in the fourth quarter and lead to the company's first annual loss in a decade.

WHY IT MATTERS: Despite its recent ups and downs, Netflix remains a home-entertainment trendsetter that has made it easier for people to forego cable service to save money. The company, which is based in Los Gatos, Calif., also is still trying to regain investors' faith 15 months after a sharp increase in its U.S. prices triggered a customer backlash and caused its stock to plummet. Netflix shares ended last week at $64.98, leaving them nearly 80 percent below their peak of $304.79 reached in July 2011.

WHAT'S EXPECTED: Analysts polled by FactSet expect Netflix to earn 5 cents per share on revenue of $905 million.

LAST YEAR'S QUARTER: Netflix earned $62.5 million, or $1.16 per share, on revenue of $822 million at the same time last year.

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