Shares of video streaming giant, Netflix, Inc. NFLX plunged 7.8% in the after-hours session despite the earnings beat in the first quarter of 2016. Apparently, investors were not satisfied with the muted earnings guidance that the company provided. This is because of the likely negative effect on the subscriber base due to the removal of grandfathering for early Netflix subscribers. This implies that they also will have to pay a higher subscription charge of $9.99 per month.Earnings of 6 cents per share in the first quarter surpassed the Zacks Consensus Estimate of 3 cents.The company’s revenues rose 24.4% year over year to $1,958 million driven by higher revenues from both International and Domestic Streaming. However, revenues missed the consensus estimate of $1,965 million. Netflix Inc. (NFLX) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany International revenues (33.3% of revenues) soared nearly 56.9% year over year to $651.7 million driven by robust growth in paid members.Domestic revenues (59.3% of revenues) improved 17.9% from the year-ago quarter to $1.16 billion.However, DVD revenues (7.4% of revenues) declined 16.4% year over year to $144.7 million.Subscriber BaseIn the quarter, Netflix recorded 6.7 million new members compared with 4.9 million in the prior year quarter. In total, Netflix now has over 81.5 million subscribers across the globe. Paid members totaled 77.7 million, up from 59.6 million in the year-ago quarter.In the Domestic Streaming segment, Netflix’s subscriber base totaled nearly 47 million, up from 41.4 million in the year-ago quarter. Paid members increased to 45.7 million from 40.3 million in the year-ago quarter.In the International Streaming segment, the company recorded 34.5 million members compared with 20.9 million in the prior year quarter. Paid members were approximately 32 million, up from 19.3 million at the end of the year-ago quarter. MarginsConsolidated contribution profit margin (revenues minus the cost of revenues and marketing cost) from streaming business was 17% compared with 17.7% in the year-ago quarter. The decline was owing to increased expenses on the international front.Operating income (for both streaming and DVD business) plummeted 49.5% year over year to $49 million. Operating margin declined 370 basis points to 2.5%. Net income was $28 million compared with $24 million in the year-ago quarter.Balance SheetNetflix had $2.1 billion in cash and cash equivalents (and short-term investments) as of Mar 31, 2016 compared with $2.3 billion as of Dec 31, 2015.Cash used in operations in the quarter was $228.6 million compared with $127.4 million cash used in operations in the prior-year quarter. The company reported non-GAAP free cash outflow of $260.6 million.Netflix’s total streaming content obligations increased to $12.3 billion from $9.8 billion in the year-ago quarter.OutlookFor the second quarter of 2016, management forecasts earnings of 2 cents per share and net income of $9 million. The Zacks Consensus Estimate for earnings per share is pegged much higher at 5 cents.Domestic and international streaming revenues are expected to be $1.2 billion and $754 million, respectively. Total streaming revenues are expected to be $1.96 billion.Management expects to add 0.5 million subscribers in the domestic streaming segment and 2 million subscribers in the international segment. Domestic streaming contribution profit is expected to be $403 million. International streaming loss is expected to be $80 million due to higher marketing spend. Netflix forecasts operating income of $47 million for the quarter.Netflix estimates U.S. contribution margin to be around 33.3% in the quarter.Our TakeWe expect the continued increase in Netflix’s paid subscriber base in the streaming segment, both domestically and internationally, to drive the top line. Additionally, the company is taking a number of initiatives to establish itself as a leading content provider. This might enable it to secure its subscriber base (to some extent atleast) after the impending price hike. Even a recent survey report from Morgan Stanley MS had stated that Netflix is gaining momentum in its original content offerings and has already surpassed Time Warner’s TWX HBO which held the top spot in the space.However, such rapid international expansion and content additions have resulted in astronomical cost escalations in the form of technology investments and marketing expenses. Therefore, margins and profitability will be under pressure over the near term.Furthermore, the company also faces stiff competition from bellwethers like Amazon.com AMZN, Hulu and HBO.At present, Netflix carries a Zacks Rank #3 (Hold).Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report TIME WARNER INC (TWX): Free Stock Analysis Report AMAZON.COM INC (AMZN): Free Stock Analysis Report NETFLIX INC (NFLX): Free Stock Analysis Report MORGAN STANLEY (MS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research