Netflix defeats shareholder lawsuit over growth forecasts

By Jonathan Stempel

(Reuters) - Netflix won the dismissal on Tuesday of a shareholder lawsuit accusing the streaming company of downplaying the impact on subscriber growth of account sharing, where paying members share user names and passwords with nonpaying members in other households.

The proposed class action led by a Texas-based trustee began after Netflix revealed in April 2022 it had lost 200,000 subscribers in the prior quarter, the first decline in a decade, and might lose 2 million more in the next three months.

Netflix blamed the decline on several factors, including account sharing, rising competition and a shutdown of service in Russia following the Ukraine invasion. Its shares fell 35% the next day, wiping out more than $54 billion of market value.

U.S. District Judge Jon Tigar in Oakland, California, however, said Netflix's earlier claims to be "roughly 60% penetrated" in the United States and Canada with "a lot of headroom" to grow were not false or misleading, because they referred to paid subscribers and did not imply that growth was certain.

He also found no proof Netflix concealed any determination that account sharing would severely hinder growth.

"At most," he said, the plaintiff's allegations suggest that the Los Gatos, California-based company investigated account sharing and found it to be "one potential threat to growth among many."

Lawyers for the plaintiff did not immediately respond to requests for comment. Netflix and its lawyers did not immediately respond to similar requests.

Tigar had dismissed an earlier version of the lawsuit in January. Tuesday's dismissal was with prejudice, meaning the plaintiff Fiyyaz Pirani, the trustee of Imperium Irrevocable Trust, cannot amend his complaint again.

The case is Pirani v Netflix Inc et al, U.S. District Court, Northern District of California, No. 22-02672. (This story has been refiled to change the location of the judge to Oakland, California, from San Francisco, in paragraph 4)

(Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis)

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