Netflix Sued by Shareholders

It’s been a rough four weeks for Netflix as the streaming service’s most recently quarterly meeting brought humbling results about their growth prospects (they were in the negative) which lead to a pretty drastic dip in their stock value. Now another headache has presented itself to the company as a class action lawsuit has been filed against them. The law office of Glancy Prongay & Murray LLP has announced a suit in the United States District Court for the Northern District of California, alleging that Netflix “made materially false and/or misleading statements” and as a result cost investors that owned shares from October 2021 to April 2022 quite a bit of money.

A press release from the firm recounted Netflix’s most recent quarterly meetings, held in January 2022 and April 2022, when the company first revealed that they had “”slightly over-forecasted paid net adds” for Q4 2021 as well as Q1 2022. At the end of last year Netflix fell short of their subscriber forecast by a margin of just 200k users, but at the start of 2022 they netted -200k users against a forecast of 2.5 million additions (the negative amount of paid users however was due to ceasing service in Russia, resulting in the loss of 700k paid subscribers). When this news became public it resulted in the share price for Netflix falling 21% from $348.61 to $226.19.

The crux of the lawsuit is alleging that Netflix “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 with regard to slower growth than forecasted. It adds that “(Netflix’s) positive statements about the Company’s business, operations, and prospects were materially false and/or misleading and/or lacked a reasonable basis,” considering how they were “exhibiting slower acquisition growth” and “experiencing difficulties retaining customers.” 

The suit is looking for investors that may have “purchased or otherwise acquired Netflix, Inc. common stock or call options, or sold put options, between October 19, 2021 and April 19, 2022,” and are seeking “compensatory damages…for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon.” Check back here for further details on this trial, which will surely be slow moving and just another headache for the streaming service, as we learn more about it.