Netflix (NASDAQ: NFLX) released its third quarter results yesterday, and things looked pretty good: net income up 30%, revenue up 16%, subscriber-acquisition costs down 15%, and the rate of subscriber cancellations remained flat.

But the company cut its revenue forecast, and net subscriber additions are down 30% so far for October compared to last year. CEO Reed Hasting said (subscription required) that "Since July, conditions have deteriorated markedly. It now appears that there will be continued growth for Netflix, but not as fast as last year." He added that "The state of the economy could explain this modest headwind."

I'm not so sure. Given that watching DVDs at home is a lot less expensive than many other forms of entertainment, it should be somewhat immune to economic woes. In an economy as weak as this one, any struggling company will be quick to blame its woes on the economy. Sometimes that's the case but, often, there are more serious issues that won't be solved by a macroeconomic upturn.

In the long run, it's hard to see what gets investors so excited about Netflix. The growth appears to be slowing, even with a price/earnings ratio of 20 -- which is pretty high in this market.

Netflix (NASDAQ: NFLX) had something of a flashy third quarter. The online DVD-rental company reported the numbers on Monday after the market closed. Revenues did well, rising 16% to $341.3 million. The bottom line, however, was an even better story. Earnings per diluted share on an adjusted basis rose 38% to 36 cents. How does this compare to Wall Street estimates? Beautifully, as analysts were looking for 34 cents per share. So management was able to deliver two extra pennies. It's cool when a company can go beyond the usual beat-by-a-penny routine, isn't it?

I applaud Netflix for its earnings data, but I can't say I'm a huge fan of its current cash-flow performance. Operating cash flow dipped nearly 6% to approximately $73 million. Free cash flow declined almost 28% to about $26 million. Looking at other numbers, I see that gross subscriber additions increased 18% on a year-over-year basis. Gross margin also improved.

Unfortunately, CEO Reed Hastings believes that the recession will negatively affect subscriber growth rates. Of course it will. At this point, every business, and more importantly to investors and traders, every stock is going to feel the wrath of the economy and the market bears. Sure, Netflix made deals with Disney (NYSE: DIS), Starz and Microsoft (NASDAQ: MSFT) that may help the company offset some of the economic realities out there, but I think the bottom line is that you'll have to be careful about buying Netflix at this point in time.