Netflix accused of misleading investors prior to subscriber loss
Netflix expects to lose another 2M subscribers in the second quarter
Key Advisors Group co-owner Eddie Ghabour provides insight into how ‘tough economic times’ are impacting the streaming services, Netflix and Paramount+.
Netflix investors have filed a class-action lawsuit accusing the streaming behemoth of making false or misleading statements about its business, operations and prospects after it reported a loss of 200,000 subscribers in the first quarter of 2022.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| NFLX | NETFLIX INC. | 823.96 | -13.30 | -1.59% |
According to the complaint, filed in the United States District Court for the Northern District of California on Tuesday, the group of investors purchased or otherwise acquired Netflix common stock or call options, or sold put options, between Oct. 19, 2021, and April 19, 2022.
They allege that Netflix artificially inflated the price of its common stock and violated the Securities Exchange Act of 1934 and Rule 10b-5 by failing to disclose prior to the company's earnings announcement that it was exhibiting slower subscriber growth, experiencing difficulties retaining subscribers and losing subscribers on a net basis.
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On Jan. 20, Netflix reported that it "slightly over-forecasted paid net adds in Q4," adding 8.3 million subscribers compared to its 8.5 million forecast. In addition, company executives forecasted at the time that they expected to only add 2.5 million net subscribers during the first quarter of 2022, below the 4 million net adds in the prior year period, despite "healthy" retention and engagement on the platform. The announcement caused shares to tumble 21.7% to $397.50 per share at the close of trading on Jan. 21, according to the filing.
The stock later fell over 35% to $226.19 per share at the close of trading on April 20 after the company revealed the 200,000 subscriber loss. Netflix attributed its lack of subscriber growth during the quarter to factors including account sharing among more than 100 million households, competition with other streaming services, sluggish economic growth, inflation, Russia’s invasion of Ukraine and continued disruption from the COVID-19 pandemic.
"Had Plaintiff and the other members of the Class and the marketplace known the truth regarding the problems that Netflix was experiencing, which were not disclosed by Defendants, Plaintiff and other members of the Class would not have purchased or otherwise acquired their Netflix securities, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid," the lawsuit states.
The investors are seeking compensation for all damages sustained, including interest, and for all attorney and court fees that will be incurred by taking the case to trial.
A spokesperson for Netflix declined to comment.
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Following the subscriber loss, Netflix has announced plans to crack down on password sharing and introduce a cheaper, ad-supported subscription tier. In addition, the company has reportedly canceled several animated projects and let go of some of the department's staff in an effort to cut costs.
Netflix, which currently has nearly 222 million paying households worldwide, expects to lose another 2 million subscribers in the second quarter.