Netflix faces lawsuit from shareholders after subscriber losses

After suffering its first quarterly loss in subscribers in a decade, Netflix has now also been slammed with a shareholder lawsuit.

The streaming company has been sued in federal court for allegedly misleading investors about its slowdown in subscribers, according to Variety and The Hollywood Reporter.

In April, Netflix disclosed it lost 200,000 subscribers in the first quarter of 2022, leading its stock to fall. Prior to this disclosure, Netflix had forecast it would gain 2.5 million subscribers during that quarter and said its business had "remained healthy," though in January, the company said acquisition was "not growing quite as fast as we were perhaps hoping or forecasting."

But the shareholder lawsuit accuses Netflix of making "materially false and/or misleading statements" about its business operations and not disclosing to investors that it "was exhibiting slower acquisition growth due to, among other things, account sharing by customers and increased competition from other streaming services." The company's "wrongful acts and omissions" led shareholders to suffer "significant losses and damages," the lawsuit also claims.

Netflix blamed a variety of factors for its loss in subscribers, including password sharing, which it has pledged to crack down on. It has projected it will lose another two million subscribers in the current quarter. The day after the company disclosed the subscriber loss, shares fell 35 percent.

According to Reuters, the lawsuit is seeking damages for those who traded Netflix shares from October through April.

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