Netflix is being sued by shareholders, who allege the streaming giant misled investors about the declining subscriber growth. Last month, Netflix shared its first negative subscriber number in 10 years during their Q1 earnings report for 2022. The streaming service reportedly lost 200,000 subscribers, dropping their total of 221.84 million to 221.64 million. Additionally, Netflix projects a devastating loss ahead in Q2, expecting to lose another 2 million subscribers.
Following Netflix’s recent news, stocks for the streaming service plummeted, losing 35% of its value, which cost the company and investors a massive amount of money. Netflix’s recent troubles are in stark contrast to where they were even just one year ago. The company had reportedly added about four million new subscribers in the first quarter of 2021. Before that, Netflix enjoyed a period of sustained growth for many years, adding more and more subscribers each year. Now, it seems Netflix has even more problems on the horizon.
Variety reports that Netflix is being sued for allegedly misleading investors about the declining subscriber growth over a period of six months, which resulted in a massive drop in stock price. The lawsuit filed Tuesday in San Francisco details that Netflix violated securities laws by devising “materially false and/or misleading statements,” and that it “failed to disclose material adverse facts about the company’s business, operations and prospects.” While the lawsuit does not specify an exact monetary number of damages, it was filed on behalf of shareholders who owned Netflix stock between October 19, 2021 and April 19, 2022.
According to the lawsuit, the top executives at Netflix had employed “devices, schemes and artifices” to defraud investors, while they knowingly held “adverse non-public information.” The lawsuit goes on to allege that these same executives made untrue statements and omitted facts about the company’s future prospects. Over the period outlined in the lawsuit, the price of Netflix stock had plummeted 67%, which started at a high of $691.69 per share on November 17, 2021 and dropped to a low of $226.19 per share on April 20. Fiyyaz Pirani, a trustee of Imperium Irrevocable Trust, and a Netflix shareholder, serves as the lead plaintiff in the lawsuit.
While it’s too early to call this the beginning of the end for Netflix, the streaming giant’s troubles seem to be mounting. As to whether the company’s top executives did mislead shareholders, as the lawsuit alleges, the court will have to make that decision. However, if the company cannot turn things around and win back and gain subscribers, it seems their problems will only grow worse. Perhaps it’s time for Netflix to make some big changes, such as moving forward with their cheaper ad-supported subscription idea.
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