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Netflix Misled Investors Ahead of Subscriber Drop, Suit Says (1)

May 4, 2022, 1:31 PMUpdated: May 4, 2022, 2:54 PM

Netflix Inc. made misleading statements about subscriber growth before revealing it had lost paying users and would likely lose more, investors allege in federal court in California.

The streaming giant didn’t disclose how password sharing and streaming competition cost it about 200,000 net subscribers in the first quarter of 2022, according to the would-be class complaint filed in the U.S. District Court for the Northern District of California.

The Silicon Valley-based company told investors in January it had “slightly over-forecasted” growth in the fourth quarter of fiscal 2021, coming in at 8.3 million new subscribers instead of 8.5 million, but still expected to add about 2.5 million new subscribers in the first quarter of fiscal 2022, the complaint says.

But Netflix announced in April that it had lost 200,000 net subscribers, blaming slowing revenue growth in part on 100 million households sharing accounts and competition from other streaming services, the investors say.

The company’s share price fell $122.42—more than 35%—in the trading day after it disclosed the net subscriber loss, according to the Tuesday complaint.

In a portion of an April 19 shareholder letter reproduced in the complaint, Netflix also pointed to Russia’s invasion of Ukraine as a reason for the net loss. The suspension of the company’s service in Russia and winding-down of paid Russian memberships accounted for a drop of around 700,000 subscribers, and excluding those accounts, Netflix actually had about 500,000 paid net additions, it said.

Causes of Action: Exchange Act §10(b)—Using a manipulative or deceptive device or contrivance for a securities transaction in violation of SEC rules (15 U.S.C. §78j); SEC Rule 10b-5—Employing a device, scheme, or artifice to defraud, making untrue statements or omitting facts, or engaging in any act, practice, or course of business which operates as a fraud or deceit (17 C.F.R. §240.10b-5).

Relief: Damages with interest; attorneys’ fees; court costs.

Potential Class Size: Hundreds or thousands of investors who acquired Netflix common stock or call options, or sold put options, from Oct. 19, 2021, through April 19, 2022.

Response: Netflix didn’t immediately respond to a Wednesday request for comment sent through its website.

Attorneys: Glancy Prongay & Murray LLP and Los Angeles-based Frank R. Cruz represent the investor behind the suit.

The case is Pirani v. Netflix Inc., N.D. Cal., No. 3:22-cv-02672, complaint filed 5/3/22.

(Updated with additional reporting throughout the story.)

To contact the reporter on this story: Jennifer Bennett in Washington at

To contact the editors responsible for this story: Rob Tricchinelli at; Carmen Castro-Pagán at; Brian Flood at