Netflix Receives Another Securities Fraud Complaint Over 2021 and 2022 Performance

An Ohio pension fund filed suit against Netflix Inc. and its leaders on Tuesday over purported missteps that concealed the truth from investors about Netflix stock’s downward trajectory earlier this year. The Cleveland Bakers and Teamsters Pension Fund’s complaint alleges that the company misled shareholders through statements made in publicly filed documents and on conference calls about subscriber and advertising forecasts, while failing to disclose the reasons known to be hindering growth.

The timeline of events begins in January 2022 when Netflix reported that it had added less subscribers than anticipated in the fourth quarter of 2021; the company’s more than $500 share price falling 22% on the news. The complaint points to a shareholder newsletter discussing fourth quarter 2021 financials that said, “while retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-Covid levels. We think this may be due to several factors including the ongoing Covid overhang and macro-economic hardship in several parts of the world like LATAM.”

During the next reporting period in April, Netflix said it lost 200,000 subscriptions during the first quarter of 2022, purportedly causing the stock to sustain another double-digit loss. The complaint argues that investors were kept in the dark about what was really going on at the company, while insiders knew that customer account sharing and increased competition from other streaming services “were becoming significant headwinds.” 

The lawsuit says Netflix was also having difficulties retaining customers, and as a result, its growth was decelerating, and its financial results were being adversely impacted. As such, the defendants’ positive statements about Netflix’s business, operations, and future were materially false or misleading and lacked a reasonable basis, the complaint says.

The action seeks to certify a class of people or entities who bought Netflix stock from Jan. 19, 2021 and Apr. 19, 2022 and lost money. The pension fund is represented by Grant & Eisenhofer P.A.

The complaint follows another action filed last month over similar alleged misconduct, though with a shorter class period. Netflix has until mid-July to answer or move for the dismissal of that complaint.