The results for the first quarter of 2022 hurt Netflix, with the loss of subscribers for the first time in 10 years. For some of the platform’s shareholders, the company deceived them by concealing its difficulties. A lawsuit was filed in federal court in California on May 3, according to Gizmodo.
Netflix is accused of hiding information from its shareholders
Netflix shareholders are angry. The disappointing first quarter results disclosed on April 19 resulted in the company’s share price falling nearly 35%. While it peaked in November 2021 at $691 a share, on April 20 the stock was trading at $226.
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Netflix’s earnings announcement was followed by a stock market crash. Source: Google
For the complainants, this dropout could have been anticipated. They believe in their complaint that the platform violated securities laws. In detail, they accuse Netflix executives of delivering ” materially false and/or misleading statements » and to have « failed to disclose material adverse facts about the company’s business, operations and prospects “. These breaches would have resulted in prices per share “ artificially inflated “.
The complaint covers the period from October 19, 2021 to April 19, 2022. In October, Netflix announced a sharp increase in its number of subscribers, by 8.5 million. It will ultimately be 8.3 million. On January 20 the company admitted to having “ slightly overestimated paid net additions in the fourth quarter “.
That same day, Netflix announced that it expects to attract 2.5 million additional subscribers in the 1st quarter. A perspective considered disappointing compared to the 4 million accounts created during the same period the previous year. The rest is known, on April 19 Netflix will admit to having lost 200,000 subscribers in the 1st quarter and to expect to lose 2 million in all in the second quarter.
For the streaming platform, the reasons for this failure are multiple: departure from Russia, following the war in Ukraine, account sharing and competition. Action was taken immediately. An experiment is being conducted to put an end to password sharing, the integration of advertising is being considered, layoffs have been made and budget cuts have been imposed on Netflix original content.
A complaint that could grow
Too short for Fiyyaz Pirani, administrator of Imperium Irrevocable Trust, shareholder and initiator of the complaint. From his point of view, the shareholders have been cheated by the management of Netflix. His complaint specifically targets chief executives Reed Hastings and Ted Sarandos, as well as chief financial officer Spencer Neumann.
He hopes to turn his complaint into a Class Action by mobilizing hundreds of thousands of people on his side, those who traded millions of shares between October 2021 and April 2022. He is asking for damages of an unknown amount.