You’d be forgiven for thinking that Netflix was flush with cash, but that’s not exactly the case.
Various industry experts have sounded the alarm about the company’s extraordinary cash flow burn, whilst others have gone as far as to say that Netflix needs a miracle to survive.
It probably won’t help, then, that the company is being sued by some investors, who are “claiming the company lied about possible subscriber numbers, and left them with “significant losses” after its share price plunged last month”.
According to the Telegraph, Deepak Venkatachalapathy, an IT analyst for Royal Bank of Canada, is seeking to launch a class-action lawsuit against Netflix on behalf of fellow shareholders:
Mr Venkatachalapathy claims that shares which he bought on April 17 were “artificially inflated” by the company when it claimed, earlier that day, that it expected more people to sign up for the service, despite rising prices.
Netflix had predicted that it would add 5m subscribers in the second quarter but only ended up bringing in 2.7m. Its share price fell more than 13% over the next two days.
Mr Venkatachalapathy, who did not reveal how much he had lost, alleges that Reed Hastings, the Netflix boss, and Spencer Neumann, the finance chief, were aware that user growth was slowing when making announcements about the company in mid April.
The lawsuit, filed in the Los Angeles district court, accuses the pair of breaking securities law by making “materially false and misleading” statements to public investors.
Venkatachalapathy’s lawsuit may just be the tip of the iceberg, with his lawyers claiming that there could be “hundreds of thousands” of people able to claim damages.
The same lawyers claim there is a precedent for such a lawsuit, with a previous ruling having seen stock sellers receive “the difference between the value of what they received for stock and what they would have received if there hadn’t been “fraudulent” conduct on the company’s behalf”.
Netflix claims that those poor second-quarter numbers are a blip, and that the third quarter will see growth back on track, having declined to comment publicly on Venkatachalapathy’s lawsuit
They could fork out millions in compensation to squash it, but we’ll just have to wait and see.
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