Streaming titan Netflix is now at the center of a lawsuit claiming the platform misled investors about subscriber loss over the last six months, culminating in the stock price plummeting.
Lead plaintiff Fiyyaz Pirani, a trustee of Netflix shareholder Imperium Irrevocable Trust, filed the lawsuit on May 3 in the federal district court of San Francisco. The lawsuit names Netflix co-CEOs Reed Hastings and Ted Sarandos and CFO Spencer Neumann as defendants. It seeks damages for investors who traded Netflix shares between Oct. 19, 2021 and April 19, 2022, as Variety reported.
The suit alleges Netflix violated U.S. securities laws by making “materially false and/or misleading statements” and failing to “disclose material adverse facts about the company’s business, operations, and prospects.” The lawsuit seeks class-action status and unspecified monetary damages on behalf of investors. Those damages include “compensatory damages in favor of Plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon.”
The official lawsuit filing claims Netflix “employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information.” The streamer allegedly also made “untrue statements of material facts and/or omitting to state material facts necessary in order to make the statements made about Netflix and its business operations and future prospects in light of the circumstances under which they were made, not misleading.”
The case is Pirani v. Netflix Inc et al., with docket number 22-CV-02672, filed in the U.S. District Court for the Northern District of California. The firm representing the plaintiffs is Glancy Prongay & Murray, which specializes in class-action lawsuits involving securities fraud claims.
Netflix has not commented on the lawsuit.
In April, Netflix reported a net loss of 200,000 subscribers for the first quarter of this year, also estimating an additional 2 million subscriber exodus in Q2. Netflix ended Q1 with 221.64 million paid subs, a decline from the 221.84 million it had globally at the conclusion of last year. Netflix stock (NFLX) immediately sunk by roughly 25 percent — or down about $85 — per share, closing under $350 per share following the Q1 announcement.
Netflix also discussed an ad-powered option and cracked down on password-sharing amongst subscribers, citing approximately 100 million households not paying for the service.
“Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally,” Netflix told shareholders on April 19. “However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently.”