Netflix Harmed Investors Financially by Failing to Disclose Poor Subscriber Growth, Class Action Alleges

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Netflix faces a proposed class action lawsuit after the ailing streaming service’s share price dropped on two separate occasions this year, including last month when the company announced it had lost 200,000 subscribers. 

The 23-page case in California alleges Netflix and its top officers failed to disclose to investors between October 19, 2021 and April 19, 2022 that the company’s growth was slowing due to, among other factors, account sharing by customers and increased competition from other streaming services. Moreover, Netflix failed to disclose that it was having difficulty retaining customers and that, as a result, its financial results were taking a hit, the suit relays. 

“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,” the case alleges. 

According to the lawsuit, Netflix reported on January 20, 2022 that it had “slightly over-forecasted paid net adds in Q4,” adding only 8.3 million subscribers in comparison to its 8.5 million forecast. Moreover, the company said that despite “healthy” retention and engagement, it expected to add only 2.5 million net subscribers in the first quarter of 2022, below the four million net adds it had during the first quarter of the prior year, the suit states. 

The complaint says that upon this news, Netflix’s stock price fell $110.75, or more than 21 percent, to close at $397.50 per share on January 21. 

On April 19, 2022, Netflix reported after the market had closed that it lost 200,000 subscribers in the first quarter of 2022, compared to prior guidance that the company expected to add 2.5 million net subscribers, the lawsuit continues. Per the case, Netflix attributed its slowing revenue growth to factors such as account sharing between millions of households and increased competition from other streaming services. 

“On this news, the Company’s share price fell $122.42, or over 35%, to close at $226.19 per share on April 20, 2022, on unusually heavy trading volume,” the lawsuit states. 

The case looks to cover all persons and entities who purchased or otherwise acquired Netflix common stock or call options, or sold put options, between October 19, 2021 and April 19, 2022 and who were “damaged thereby.” 

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