Stock news arrives as revs jump 21% in fiscal third qtr.

The flatlining DVD biz is hitting Lionsgate where it hurts.

Shares in the indie studio dropped 15% in after-hours trading Thursday as it cut guidance for the fiscal year ending March 31 for the second time in two months.

News came as the company reported that revenue jumped 21% in the fiscal third quarter thanks in large part to box office hit “Saw II,” while net income was down slightly.

Company is now expecting net income of just $4 million. It previously told investors to expect $35 million, then cut that number to $15 million in December.

Free cash flow, which Lionsgate execs have told investors is a key performance metric, is now projected to come in at $85 million. Company was previously looking for $100 million.

Guidance for projected earnings before taxes and other costs is now $20 million, down from $35 million and $63 million before that.

Company attributed $6 million of the cutback to softness in family homevideo, $4 million to the direct-to-vid market, $4 million to the bankruptcy of vidtailer Musicland and $2 million to extra expenses for the “Crash” Oscar campaign.

Revenue for the year is still projected to come in at $850 million.

“As our industry continues to move through an inflection point in advance of new revenue streams from high-definition DVD, electronic sell-through and other new technologies, we are experiencing continued softness in most areas of family home entertainment and direct-to-video titles which is offsetting gains in our other businesses,” said CEO Jon Feltheimer.

For the quarter ended Dec. 31, Lionsgate earned $3.1 million on revenue of $231 million. It got a big boost from theatrical hit “Saw 2,” DVD revenues from “Crash” and pay TV revs for “Diary of a Mad Black Woman,” while flop release “In the Mix” did little.

January’s “Hostel” opened big, but guidance cut shows that Lionsgate execs think homevideo problems will more than outweigh it.

Execs will hold a conference call with investors to discuss earnings this morning.

Lionsgate shares were trading at $7.52 after hours Thursday. They closed at $8.82 before earnings were released.

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