Netflix wasn’t the only to lose huge money and those people are so angry at the streaming company they’re suing.
If Netflix thought the worst of its problems were behind it and it could get on with the business of rebuilding, it needs to think again.
The streaming company was this week hit with a class-action lawsuit from angry investors who accused Netflix of misleading them about its many challenges.
The complaint filed by the shareholders said, “As a result of (Netflix’s) wrongful acts and omissions, plaintiff and other class members have suffered significant losses and damages.”
At the core of the lawsuit is the accusation Netflix’s executives told the market its business fundamentals were strong and they were expecting continued growth when the opposite was true.
The suit contended Netflix’s “materially false and/or misleading statements and/or failures to disclose” led them to buy Netflix stock based on the impression that the company was in a stronger position than it was.
If they had known the true state of things, they would never have bought the stock and subsequently suffered financial losses.
The suit is seeking to represent anyone who bought Netflix shares between October 19, 2021, when its stock price closed at $US636, and April 19, 2022, the day before Netflix’s dire first quarter financial results were announced.
On April 19, the Netflix stock price closed at $US348. By the end of the next day, it had suffered a precipitous drop to $US226. It currently sits at a still worse $US188. The difference between the October 19 stock price and now is a loss of 70 per cent of Netflix’s market value.
Its current market capitalization is $US83.6 billion.
The start of the lawsuit period was when Netflix revealed its 2021 third-quarter results. At the time, its chief financial officer, Spencer Neumann, said on an investor call, “Throughout the quarter, the business remained healthy as it had been throughout the year with churn at low levels.”
According to The Hollywood Reporter, Neumann added that “healthy retention” was expected to continue. By January 2022, Netflix corrected its forecast and said it was expecting to add 200,000 fewer subscribers than it had originally predicted but that acquisitions were still growing.
On April 20, Netflix revealed in its first quarter results that it did not miss its subscriber forecasts, it posted a net loss of 200,000 subscribers, the first time in a decade its membership had declined.
Netflix also forecast it would lose a further 2.5 million subscribers in the three months to June 30.
The streaming company blamed a combination of the conflict in Ukraine – it suspended 700,000 accounts in Russia – and macroeconomic factors as well as competition from rivals and password sharing.
Netflix’s financial woes and plunge in value has led the company to take a raft of measures.
Founder and co-chief executive Reed Hastings flagged Netflix would introduce an advertising-supported cheaper membership tier to attract new subscribers, a move he had previously ruled out.
Netflix also flagged it would crack down on password sharing, a practice which it says is leading to missed revenue opportunities. It said 100 million of its 222 million accounts shared their passwords beyond their household.
In the aftermath of its financial results, the company has already made moves to cut costs, canceling a slate of projects including some that were in-production, such as Meghan Markle’s animated series PearlSteve Carell’s space force and the Michael B. Jordan-produced raising dion.
It also exited its head of animation as well as several staffers, and cut employees from its editorial arm, Tudum.