Shareholders allege Netflix misled market about continued subscription growth

Netflix shareholders filed a lawsuit Tuesday accusing the streaming giant of misleading the market about its subscription growth after the company reported losing 200,000 subscribers in the first quarter of 2022.

In a class-action lawsuit filed in the U.S. District Court in the Northern District of California, shareholders allege that Netflix said it would add about 2.5 million subscribers in the first quarter of 2022, but instead the company reported a 200,000 subscriber loss in April.

After news of the subscriber loss broke, Netflix shares dropped more than 35 percent to $226.19 per shares. Shareholders say they suffered “significant losses and damages” because the streaming company did not accurately report its internal struggles with subscriber growth.

The plaintiffs demanded a trial by jury to be compensated for an undisclosed amount of damages.

“Defendants failed to disclose to investors that Netflix was exhibiting slower acquisition growth due to, among other things, account sharing by customers and increased competition from other streaming services,” the lawsuit reads.

The Hill has reached out to Netflix for comment.

Netflix reported its first subscriber loss in more than 10 years in its first quarter earnings report and forecasted a global paid subscriber loss of 2 million for the second quarter.

The streaming company cited a few reasons for the losses: Netflix accounts are being shared with about 100 million households for free; competition is toughening from new streamers, including AppleTV and Disney+; and the loss of about 700,000 subscribers due to the war in Ukraine.

The pandemic was also an issue.

“COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward,” the company said in April.

Netflix has raised subscription prices and also plans to crack down on password sharing to improve its business model.

In the lawsuit, shareholders say Netflix “employed devices, schemes and artifices to defraud” shareholders, alleging the company had non-public information that indicated its model wasn’t working and they could lose subscribers.

The lawsuit names Chief Financial Officer Spencer Neumann and CEO Reed Hastings, accusing them both of misleading shareholders.

The plaintiffs shared one statement from Neumann in October 2021, in which he told analysts and investors in a conference call about positive growth in the third quarter.

Neumann said that Netflix expected “to continue in terms of that healthy retention and then this kind of acceleration as we get past those initial market reopenings with COVID.”