Shares in online rental service Netflix rose 13.6% to $19.60 today (Oct. 5) amid news that third-quarter earnings are expected to be above earlier company forecasts.

Shares in online rental service Netflix rose 13.6% to $19.60 today (Oct. 5) amid news that third-quarter earnings are expected to be above earlier company forecasts.

Netflix reports that its earnings could reach $17.5 million, far exceeding the previously announced $6.7 million-$10.2 million earnings forecast for the third quarter.

In a statement, the Los Gatos, Calif.-based Netflix says that the higher forecast is due to strong gross margins caused "in part because movie rentals in the quarter were lower than expected. Lower rentals may have resulted from consumer interest in the Olympic broadcast." A decrease in rentals improves gross margins because Netflix subscribers pay a monthly fee to use the service.

Additionally, Netflix reports 73% year-over-year subscriber growth. The service now has 2.2 million subscribers, compared to 1.3 million subscribers at the end of 2003's third quarter. Paid subscribers accounted for 96% of total subscribers by the end of the third quarter; 4% were new trial subscribers.

Household penetration reached 1.9% by the end of the third quarter, compared to a 1.2% nationwide penetration rate by the end of the 2003's third quarter. In the San Francisco area, penetration was at 8.1% by the end of the third quarter, up from 5.4% last year.

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