An investor has sued Los Gatos, Calif.-based Netflix Inc. and three of the company’s leaders for two share price drops that occurred in January and April. The complaint faults the entertainment platform and individual defendants for making false and misleading statements as well as omissions about Netflix’s business, operations, and prospects.
The class action seeks compensatory damages on behalf of a class of people and entities that purchased or otherwise acquired Netflix common stock or call options, or sold put options, between Oct. 19, 2021 and Apr. 19, 2022, inclusive.
According to the San Francisco, Calif. suit, the first stumble came on January 20 when Netflix announced that it over-forecasted the number of subscribers it suspected to add in the fourth quarter; the number came in at 8.3 million compared to the 8.5 million forecast. In addition, the company also made known that “despite ‘healthy’ retention and engagement, it only expected to add 2.5 million net subscribers during first quarter 2022, below the 4.0 million net adds in the prior year period.”
Reacting to the news, Netflix’s stock price tumbled $110.75, or 21.7%, to close at $397.50 per share the following day, on unusually heavy trading volume. Three months later, Netflix reported that it lost 200,000 subscribers during the first quarter of 2022, in contrast to guidance expecting that it would add 2.5 million.
Netflix attributed its slowing revenue growth to several factors, including account sharing with approximately 100 million additional households and competition with rival streaming services. Thereafter, its common stock plunged $122.42, or more than 35%, to close at $226.19 per share on April 20, again on unusually heavy trading volume.
The shareholders say that the defendants, including the company’s co-CEOs, failed to disclose the factors contributing to its slowed growth, including that account sharing was capping profits and that it was having difficulty retaining customers. The filing states two claims for relief from the anti-fraud provisions of the Securities Exchange Act of 1934, one against the individual defendants specifically, and one against all defendants.
The plaintiff is represented by Glancy Prongay & Murray LLP and The Law Offices of Frank R. Cruz.
