Netflix Shareholders Bring Lawsuit Against the Streaming Giant Following Subscriber Losses

by Taylor Cunningham
(Photo by Mario Tama/Getty Images)

After reporting record low subscriber numbers in the first fiscal quarter of the year, Netflix is now taking another hit as shareholders bring a major lawsuit against the company.

Earlier this year, the streamer announced that over 200,000 people had dropped their subscriptions. And it claimed that it would need to pause or cancel major projects in order to save money and offset the losses. However, the company also claimed that it would gain new business within the coming months. So, the bad news was only temporary.

But that positive outlook has failed to come true. And now shareholders are claiming fraud in a California court.

The claimants are asking a judge for “compensatory damages in favor of Plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing.”

According to Variety, the suit alleges Netflix has been lying about its subscriber growth for six months. And by doing so, the investors have seen a massive drop in stock price.

The filings also say that the company violated securities laws by failing to “disclose material adverse facts about the company’s business, operations, and prospects.”

A Lawsuit Says Netflix Lied During its First Quarterly Shareholder Meeting

During the quarterly meeting, Netflix claimed that a failing economy and excessive password sharing caused subscriber numbers to tumble. It also blamed competition from new streaming platforms and the war in Ukraine for its problems. In a shareholder letter, the company wrote that if it had not suspended service in Russia, it would have gained 500,000 users.

Along with the grim news, the streamer also warned that it stood to lose another two million customers. Though, CEO Reed Hastings claimed he had worked out strategies to reverse the damages.

Then, the company had a historic one-day drop on April 20th. The day after it admitted that subscriber numbers were lower than it expected. And that caused a 35% crash, which equaled $54 billion in market capitalization.

However, the lawsuit reaches back to the third-quarter 2021 earnings report from October 19. On that day, investors say the company failed to share that “Netflix was exhibiting slower [customer] acquisition growth due to, among other things, account sharing by customers and increased competition from other streaming services.”

Overall, the suit shows that Netflix’s stock price has dropped 67% since November 17th. On that day, it was selling for $691.69 a share. But after suffering a few major falls, the stock closed on Wednesday (May 4th) for only $204.01 apiece.