More Bad News for Netflix: Streaming Giant Slammed With Class Action Lawsuit Shareholders are alleging that Netflix misled them when they were making their investments.

By Emily Rella

entrepreneur daily

CHARLY TRIBALLEAU | Getty Images

Looks like it's more bad news for Netflix as the company attempts to recover from a brutal Q1 2022 earnings report and a record loss of about 200,000 subscribers.

Investors of the streaming giant have filed a class-action lawsuit claiming that they have suffered "significant losses and damages" on account of Netflix making "false and/or misleading" statements about its business, prospects and financial results.

The complaint, which was filed in federal court in California on Tuesday, involves shareholders that purchased stock between Oct. 19, 2021, and April 19, 2022 (between Q4 2021 and Q1 2022).

Related: What's Going on With Netflix? Everything You Need to Know About the Company's Massive Fall

In Netflix's Q3 2021 letter to shareholders, the company stated that it was "excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially," while also claiming that the company was seeing the "positive effects of a stronger slate in the second half of the year."

At the end of Q4, a similar letter to shareholders was released, which stated that "even in a world of uncertainty and increasing competition, we're optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world."

The company, however, did not go into detail about the dwindling number of subscribers and subscriber growth, and shareholders allege that Netflix's stock value was inflated as a result.

Related: Brutal Month for Netflix Ends With Anger: 'Netflix Recruited Me Seven Months Ago Only to Lay Me Off'

The loss of 200,000 subscribers as announced during the company's Q1 2022 earnings call (which is being blamed on an increase in password sharing between accounts, a stronger streaming competition subset and a price hike for members) was the company's biggest dropoff in over a decade, sending its stock price down a whopping 26% during premarket trading hours that same day.

The investors involved with this week's lawsuit are not the only shareholders that are up in arms with Netflix as of late.

Billionaire investor Bill Ackman (head of Pershing Square Capital Management) pulled his $1.1 billion investment into the streaming giant (in the form of 3.1 million shares) after Q1 2022 earnings were reported, just three months after his initial investment.

"While Netflix's business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty," Ackman said in a letter to Pershing shareholders at the time.

The streaming company was most recently under fire for laying off around 25 employees at Tudum (Netflix's fandom site launched by the company's marketing division) just last week.

Netflix was down another 6% in a 24-hour period as of late Thursday morning.

Related: Netflix Loses Subscribers For First Time In A Decade

Emily Rella

Entrepreneur Staff

Senior News Writer

Emily Rella is a Senior News Writer at Entrepreneur.com. Previously, she was an editor at Verizon Media. Her coverage spans features, business, lifestyle, tech, entertainment, and lifestyle. She is a 2015 graduate of Boston College and a Ridgefield, CT native. Find her on Twitter at @EmilyKRella.

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