Shareholders filed a lawsuit against Netflix for allegedly misleading the market about its subscriber base. The lawsuit, which was filed in a California court, claimed that Netflix downplayed the impact of increased competition and password sharing on its ability to add subscribers
The shareholders are asking the court to demand damages from Netflix for the recent decline in its share prices, which were sparked after the company missed to hit its subscriber growth targets. Investors in the complaint also claimed that Netflix was overly optimistic about its prospects and misled them about the subscribers it had been losing. They added that Netflix's "wrongful acts and omissions" resulted in "significant losses and damages."
Netflix said in April that it had lost 200,000 customers during its latest quarter ending in March. It was the first time in years that the streamer's user base had declined. It blamed the decline on a slow economy, growing competition from other streaming sites, and the conflict in Ukraine. The company claimed that it would not have lost 500,000 users if it had not suspended service in Russia.
Netflix then announced that it expects to lose another 2 million customers in the coming quarter, sending its stock down 35%. Netflix blamed the drop in its subscribers over its latest quarter on inflation, competition from rival streaming services, and the suspension of service in Russia.
Its shares previously dropped by more than 20% in January after it announced weaker subscriber growth. During that time, Netflix claimed that its acquisition of new subscribers was actually growing, but just not growing as fast as it had anticipated. The company explained that the slowdown in subscriber growth was likely due to a "COVID-19 overhang" and "macroeconomic strains" outside of the U.S.
The lawsuit's complainants were mainly investors who had bought Netflix shares between October last year and April this year. The complaints said Netflix's recent statement did not truthfully disclose the reality of its subscriber growth. In the said statement, Netflix claimed that it was seeing "positive" and stronger" prospects. Netflix chief financial officer Spencer Neumann claimed that the company's business "remained healthy," and it expects to experience growth as more economies reopen.
The lawsuit, led by a trustee of Imperium Irrevocable Trust, names Netflix Co-Chief Executives Reed Hastings and Ted Sarandos and Chief Financial Officer Spencer Neumann as defendants. The suit was filed in the U.S. District Court in the Northern District of California on Tuesday.