I didn't want to be right. At least when I compared the mail-order DVD rental market of today to the state of satellite radio last year -- in my "Is Netflix the Next XM?" article two weeks ago -- I didn't want to be right so soon.

I was concerned that Netflix (NASDAQ:NFLX) CEO Reed Hastings was overestimating the size of the collective market, just as XM (NASDAQ:XMSR) did last year before ultimately slashing its year-end subscriber targets several times.

"We're forecasting around 2 million this year in net additions," he told The Wall Street Journal last month, discussing his company's projected net subscriber growth, despite the aggressive push at rival Blockbuster (NYSE:BBI). "They're forecasting around 2 million net additions. The amazing thing is that that's 4 million net additions total, that the market is growing that fast."

It didn't sit right with me.

"Maybe Netflix gets its 2 million," I wrote at the time. "Maybe Blockbuster does. I just don't think that both will be able to do so. One will grow at the expense of the other."

Blockbuster has yet to buckle, but Netflix did during this morning's first-quarter report. Netflix is now looking to close out the year with between 7.3 million to 7.8 million subscribers, well below its original projection of 8.0 million to 8.4 million happy recipients of those red mailers.

It gets worse. Gross subscriber acquisition costs of $47.46 are higher than they were a year ago as well as sequentially. Compounding the costlier additions, customers just aren't sticking around the way they used to as the monthly churn rate crept up to 4.4% (also up both year-over-year and sequentially).

Checking out the numbers
Thankfully, there is a big difference between satellite radio and the Web-based mail-order flick rental business: profitability. Netflix is squarely in the black. March quarter revenue rose 36% to $305.3 million. Earnings doubled to $0.14 a share, or $0.16 per share if you back out stock-based compensation expenses. It did clock in at the low end of the company's original guidance, but it is growth.

Unfortunately, it gets a bit more troublesome from here. Netflix closed out the quarter with 481,000 more subscribers than when it started, but that pace will deteriorate for the balance of the year. With the company's new subscriber target range, Netflix is looking to add between 500,000 and a million net new accounts over the next nine months.

The biggest blow will come in the current quarter. The company's guidance calls for it to close out the period with 6.7 million to 6.9 million subscribers. With 6.8 million users at the end of March, we're looking at the grim possibility that Netflix may lose more customers than it gains during the period. Ouch!

Financially speaking, Netflix is looking to earn between $0.18 per share to $0.24 per share for the June quarter. Analysts were perched on the $0.27 a share mark. The company's top-line guidance also falls short of Wall Street's expectations of $315.6 million. Netflix is lowering its full-year projections, but not as drastically as the current period's shortcoming.

That has me concerned. I hate to mention XM and Netflix in concert too many times --  much less in the same headline -- but the shoe seems to fit, especially if we're waiting for the other shoe to fall.

XM wound up lowering its year-end targets three times over the course of 2006. Whether XM was unaware of its own shortcomings or felt that Sirius (NASDAQ:SIRI) gains weren't coming at its expense, it was naive and shareholders paid the price. When you're in a cutthroat business, growth is never mutually exclusive.

Blockbuster has struck a chord with its Total Access program that allows for in-store exchanges. It's the Sirius equivalent of Howard Stern without the strippers. And just as XM and Sirius overestimated the elasticity of its market, the flick rental market is getting flatter and more widespread.

Today may find Netflix competing against Blockbuster, but digital delivery is making companies like Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL) a pool of competitive threats that will only intensify with every passing quarter.

Netflix is doing its part to matter in digital delivery, but rivals can tiptoe across that moat.

Yes, I've been a Netflix shareholder and subscriber for nearly five years now. I don't expect that to change, even though I recently downgraded my Netflix service since I'm just not going through the rentals the way I used to.

As an investor, I'm also learning to temper my expectations. I don't like that feeling. Even though it's only April, I'm already dreading the second-quarter report come July. Will another shoe drop? And if Netflix is now a dog, does that mean that it has enough legs for another pair of shoes to drop after that?

I hate thinking like that. The only red I want to see out of Netflix is that red mailer in my mailbox.     

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Netflix and Amazon.com have been recommended to Stock Advisor subscribers. Microsoft, with its growing Xbox 360 digital delivery offerings, is an Inside Value selection. XM is a former stock pick in the Rule Breakers stock research service. Free 30-day subscriptions are available on any -- or all -- of those market-thumping newsletter services.    

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.