According to the Hollywood Reporter, a group of shareholders are suing Netflix after the streaming service misled them about subscriber growth after last month’s sharp decline and price drop in the stock market.
Investors who purchased Netflix stocks between October 19, 2021, and April 19, 2022, are suing. They allege that in its 2021 third-quarter letter to shareholders, the streaming company painted a rosy image of “seeing the positive effects of a stronger slate in the second half of the year.”
During a conference call with analysts and investors, Netflix chief financial officer Spencer Neumann reportedly said something similar, saying that management “expected to continue in terms of that healthy retention and then this kind of acceleration as we get past those initial market re-openings with COVID [and] past the COVID pull forwarding into the strength of our slate.”
After reporting a 200,000-subscriber drop in the first quarter of 2022, Netflix cited several possible causes, including password sharing, increased competition, customers unable to pay for the service due to the pandemic, and the belief that 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 news of falling subscribers in Q1 triggered a 35.1 percent decrease in a single day, resulting in a $54 billion market capitalization loss. This followed a 22% drop in late January when Netflix failed to meet its Q4 subscriber growth expectations.
Netflix and its top executives are accused of breaking US securities laws by “employing devices, schemes, and artifices to defraud [investors], while in possession of material adverse non-public information.”
Netflix has said that it expects to lose another two million subscribers in the second quarter.
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