Netflix Shareholders Sues Company Over Slumping Subscription Numbers
On May 4th, 2022, Reuters reported that a group representing Netflix shareholders has filed a lawsuit against the company arguing that corporate leadership made material misrepresentations about the firm’s ability to keep growing its subscriber base. The shareholder lawsuit was filed in the federal court in the Northern District of California. Here, our West Palm Beach shareholder dispute lawyers provide a more detailed account of the dispute and explain what shareholders need to prove to establish liability on the part of the company.
Background: Netflix Lost Subscribers in the First Quarter of 2022
Netflix lost 200,000 subscribers in the first quarter of 2022. For reference, the company’s projections anticipated subscriber growth of 2.5 million during that period. It is the first subscriber count loss in many years. Even more alarming for the company, Netflix revised its future guidance. The company now expects to lose 2 million global subscribers in the second quarter of 2022.
The surprising announcement sent the Netflix stock tumbling. The day before the announcement it closed at just over $348 per share. The day of the announcement, the company immediately lost 35 percent of its total market value. Since that time (April 20th, 2022) the value of Netflix’s stock has continued to gradually decline.
Shareholder Lawsuit: Company Misled the Market
A group of shareholders led by an investment trust based in Texas allege that Netflix’s corporate leadership intentionally and knowingly misled the market. In the lawsuit filed in a federal court in the company’s home state of California, the shareholders contend that corporate leadership knew its subscription growth projections were unrealistic far before they released that information to the public. They contend that the top corporate management at Netflix should have disclosed its inability to maintain subscriber growth far earlier. Shareholders are seeking compensation for the sharp losses that many of them suffered.
Shareholders Must Prove a Material Misstatement or Omission
Shareholder litigation is complicated. A shareholder cannot hold a company liable simply because of poor performance or poor management. To establish liability in a direct shareholder lawsuit, a plaintiff(s) generally needs to prove that the company’s leadership made a material misstatement or material omission. In effect, this means that shareholders must prove that they suffered tangible financial damage—usually in the form of investment losses—because the corporation committed a fraudulent act by misleading the investors. It is not enough to prove that Netflix was wrong about its projected subscription growth. In a lawsuit, a shareholder must prove that the company knew its growth estimates were unrealistic/unobtainable.
Call Our South Florida Shareholder Litigation Attorney for Immediate Help
At Pike & Lustig, LLP, our Florida shareholder lawyers have the professional skill that you can count on. If you are a shareholder considering taking legal action through a direct shareholder lawsuit or a shareholder derivative claim, we can help. Contact us now to arrange your confidential case review. With offices in West Palm Beach, Miami, and Wellington, our firm handles shareholder disputes throughout the entirety of Southeast Florida.