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Netflix Shareholders File Suit, Claim Company 'Failed to Disclose' Downer Growth Outlook

(Image credit: Netflix)

A group of Netflix investors have filed suit against the streaming company in a San Francisco federal court, alleging that from October to April, Netflix failed to disclose "adverse material facts" about its true growth prospects. 

The class-action complaint names Co-CEOs Reed Hastings and Ted Sarandos, as well as Chief Financial Officer Spencer Neumann. 

Netflix stock declined 22% in January when the company revealed that it missed subscriber growth guidance during the fourth quarter of last year. And the stock cratered 35% last month, when Netflix conceded that it not only missed guidance on customer growth in Q1, it actually lost 200,000 paid users.

“Throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects,” read the suit, which was obtained by Deadline

Specifically, the suit said Netflix didn't properly disclose that it was losing revenue because of password-sharing, a point of emphasis during Netflix's Q1 earnings report. 

In its quarterly letter to shareholders published April 19, Netflix management listed a host of reasons as to why its subscribers and revenue have decelerated, among them: slowing distribution of connected TV devices due to supply chain issues; Netflix's sudden withdraw from Russia, leaving behind 700,000 subscribers; increased SVOD competition; and yes, password sharing. 

Did Netflix realize the collective impact of all of these factors prior to disclosing them to investors in January and April? As always in investor class-action complaints, that will be difficult to prove. ■

Daniel Frankel is the managing editor of Next TV, an internet publishing vertical focused on the business of video streaming. A Los Angeles-based writer and editor who has covered the media and technology industries for more than two decades, Daniel has worked on staff for publications including E! Online, Electronic Media, Mediaweek, Variety, paidContent and GigaOm. You can start living a healthier life with greater wealth and prosperity by following Daniel on Twitter today!