Netflix shareholders file class action suit over stock prices

17 Jan 2012

A group of shareholders have filed a class action lawsuit against Netflix, claiming the movie-streaming firm concealed “negative trends” in its business before its share price dropped during 2011.

PaidContent reports that the shareholders claim Netflix hid the fact it had short-term content deals which needed to be renegotiated at a higher price. They say that as a result, the business and the cost of the service would be altered, meaning Netflix knew it would not reach its earnings forecast made for 2011.

The lawsuit states that by withholding this information, Netflix’s stock was artificially inflated, reaching a high of US$300 per share during July 2011. It claims Netflix executives then sold 388,661 company shares for more than US$90m, though it didn’t say whether the sales were pre-scheduled.

However, later that year, Netflix revealed it lost 1m subscribers due to price increases. It announced it would charge separately for two services – one for its streaming service and another for a DVD rental service called “Qwikster” – but the negative reaction caused it to backtrack on this.

By the end of October, its share price dropped to US$80.86 per share.

Netflix has been working to gain new content deals and recently launched its service in the UK and Ireland. It will also host original content such as House of Cards from executive producer David Fincher starring Kevin Spacey and Lilyhammer starring Steven Van Zandt from The Sopranos.

On Friday, Netflix’s stock closed at US$94.79 per share. We’ve reached out to Netflix for a statement on the case.