Netflix Inc. (NDAQ:NFLX) shares rose more than eight percent today after the company's earnings won over shareholders on Wall Street. The surprisingly strong results eased worries that the company's profits were suffering from a lengthy battle with competitor Blockbuster and as a result of a shrewd price cutting strategy that revived subscriber growth.

Revenue for the third quarter rose 15% from $256 million to $294 million while net income rose to $15.7 million from $12.8 million a year earlier. These numbers were validated by free cash flow growth from $22.3 million to $36.1 million. And last but not least, the online rental company managed to increase its subscriber base a whopping 24% year over year and even raised its guidance for next year to include revenues of $1.2 billion on 7.5 million subcribers.

The online rental space has experienced a lot of competition recently that has caused some concern for Netflix investors. Three months ago, Netflix suffered its first quarterly decrease in subscribers while Blockbuster enlisted 600,000 new online customers. Netflix responded by lowering their price by $1 per month, which expanded its sign-ups without damanging profits as the company was able to spend less on advertising.

Analysts also increased their price targets on the company. Lehman Brothers' Douglas Anmuth increased his target to $24 per share while Banc of America's Brian Pitz kept his target steady at $22 per share. Some analysts are concerned that Netflix's upcoming R&D costs along with signs that the company's growth is sustainable and not just the beginning of another damaging price war.

In the end, this is great news for shareholders but whether or not Netflix can build a sustainable strategy around its price cuts remains to be seen. Regardless, this is definitely a stock to watch over the next few quarters!

Related Companies
Blockbuster Inc. (BBI)
Movie Gallery Inc. (MOVI)
Time Warner Inc. (TWX)