Netflix shareholders filed a lawsuit in a California court this week, accusing the company of misleading the market over the past few months in ensuring the growth of paying users.
The lawsuit, filed in federal court in San Francisco on Tuesday, seeks compensation from Netflix for this year’s stock price drop. Earlier, the company reported quarterly results that fell well short of expectations in terms of paying subscriber growth.
The lawsuit, filed by a Texas-based investment trust, accuses Netflix and its executives of failing to properly account for slowing growth and a net loss of paying subscribers in an increasingly competitive market.
Netflix shares fell 20% in January after disclosing weak growth in paying subscribers. Shares in the company fell more than 35% to $226.19 on April 20. The previous quarterly earnings report showed that the number of paying users fell by 200,000 in the first quarter, far worse than market expectations for an increase of 2.5 million.
Netflix attributed the slump in quarterly results to inflation, competition from other video platforms and the loss of 700,000 paying subscribers by suspending operations in Russia following the Russia-Ukraine conflict.
A Netflix spokesman has yet to respond to the lawsuit. The lawsuit also names Netflix co-CEOs Reed Hastings and Ted Sarandos, as well as CFO Spencer Neumann. The lawsuit seeks compensation from Netflix to investors who traded the company’s stock between October 19, 2021, and April 19, 2022.