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Netflix shareholders launch lawsuit over ‘misleading’ growth statements

Netflix has been handed a lawsuit from shareholders in California over its recent subscriber decrease.

Last month, the company revealed that it had lost subscribers for the first time in a decade. While this largely came as a result of the company’s exit from Russia and inflation, the perception of Netflix being stagnant has rocked the streamer which has seen its share price drop by almost 50% since it released its Q1 results.

The streamer is now facing further indignity from its own shareholders, with a lawsuit alleging that the company had misled the market about its ability to maintain its upward subscriber trajectory. Accusing the company of securities fraud, it states that Netflix “failed to disclose material adverse facts” which caused shareholders “significant losses and damages.”

The lawsuit – filed by a Texas-based investment trust – seeks damages for declines in Netflix’s share price, and accuses Netflix of failing to disclose that growth was slowing in an increasingly competitive market. The company lost 200,000 subscribers in Q1 versus internal projections of 2.5 million adds. 

In particular, the suit names the streamer’s Co-CEOs Reed Hastings and Ted Sarandos along with CFO Spencer Neumann as it seeks damages for investors who traded Netflix stock between October 19, 2021 and April 19, 2022

The suit reads: ​​“Throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects.

“Specifically, Defendants failed to disclose to investors: (1) that Netflix was exhibiting slower acquisition growth due to, among other things, account sharing by customers and increased competition from other streaming services; (2) that the Company was experiencing difficulties retaining customers; (3) that, as a result of the foregoing, the Company was losing subscribers on a net basis; (4) that, as a result, the Company’s financial results were being adversely affected; and (5) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially false and/or misleading and/or lacked a reasonable basis. 8. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.”

Netflix is yet to comment on the lawsuit.

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