Netflix (ticker NFLX) released their financial results for the first quarter of 2011 after the market closed today, beating analyst expectations by notching earnings per share of $1.11 on sales of $718.6 million, nearly doubling year ago results of 59 cents per share. The consensus expectation had been for $1.08 a share on revenue of $704 million. Netflix added 3.3 million U.S. subscribers during the first three months of 2011, bringing total U.S. subscribers to 22.8 million. According to MarketWatch, Netflix had said in January that it expected to end the first quarter with 21.9 million to 22.8 million U.S. subscribers.

Despite the apparent good news and the earnings beat, the stock is trading down sharply after hours due to some elements in the announcement regarding forward looking expectations. “Looking forward, our prior period comps for net adds are going to get tougher, and while we expect our net adds the rest of this year to continue to exceed those of the prior year, it won’t be at a pace of nearly 2X like in Q1,” the release said. Netflix forecast earnings for the second quarter ending June 30 that were weaker than Wall Street analysts anticipated. The company said it expects to report earnings per share for the second quarter between 93 cents and $1.15, compared to the $1.18 expected on average by analysts surveyed by Thomson Reuters.

Netflix also announced it will pass a milestone during its current quarter, when for the first time it will mail out fewer rental DVDs in its distinctive red envelopes than it did in the same period the prior year. The decline in DVD shipments underscores the speed of the transition Netflix is making to streaming Internet video from mailing physical copies of movies to its members. The increased costs for licensing content for their streaming video service will negatively impact net earnings and operating margins. There is hope that the increase in licensing costs will be partially offset by a decrease in postage costs as members stream more videos and rent fewer DVDs. Already the company has begun to discourage people from choosing rental plans that offer consumers the option of also renting DVDs. In its letter to shareholders, the company said the sign-up page on its website for non-members is now “all about streaming.”

NFLX closed at the end of trading today at $251.67 and was trading as low as $239, down approximately 5%, in after hours trading upon release of the earnings announcement.