Netflix Inc warned of continued steep declines in DVD subscribers this quarter and said a costly expansion into Britain and Ireland would push it into the red in the first quarter, walloping its shares.

The top video rental company reported a better-than-expected 49 percent surge in third-quarter revenue to $822 million, surpassing Wall Street's target of about $812 million.

But investors -- mindful of how the company led by CEO Reed Hastings had driven away customers in recent months and damaged its credibility with an unpopular price hike and other high-profile stumbles -- focused on the fourth-quarter warning.

Netflix shares plummeted almost 20 percent to $95.50 in after-hours trading.

We expect the costs of our entry into the UK and Ireland will push us to be unprofitable on a global basis; that is, domestic profits will not be large enough to both cover international investments and pay for global G&A and technology and development, Hastings said in a letter to shareholders accompanying its quarterly report.

Hastings added that subscriber defections because of the price-hike should slow in coming quarters as the price effect washes through.

The company reported earnings per share of $1.16 on net income of $62 million. Analysts had expected earnings per share of 94 cents, according to Thomson Reuters I/B/E/S. But it was not immediately clear if those earnings numbers were comparable.

(Reporting by Lisa Richwine, editing by Bernard Orr)

United kingdom Software Netflix