Court Throws Out Shareholder Lawsuit Accusing Netflix Of Issuing Misleading Guidance

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Netflix succeeded in getting a shareholder lawsuit dismissed that had accused the company of inflating its share price by concealing rising costs, even as insiders like CEO Reed Hastings were selling millions of dollars in stock, reports Reuters.

The lawsuit was filed in January 2012 by shareholders led by the Arkansas Teacher Retirement System and State-Boston Retirement System, which claimed Netflix deceived them about its prospects. They also said Netflix misled shareholders by launching a stock buyback program, a sign that shares might be undervalued, even as Hastings and other insiders were selling off close to $85 million of their own shares. Hastings was also deemed not to have materially misled investors on a conference call on Dec. 8, 2012, when he said Netflix would benefit from a “virtuous cycle where it could add subscribers and streaming content while lessening the costs of its DVD-by-mail rental service.

U.S. District Judge Samuel Conti in San Francisco said that the plaintiffs did not prove their claims and said that the company’s business model “worked exactly as Netflix said it would” until Netflix began to lose subscribers after announcing price increases and its DVD-business spinoff.” Plaintiffs now have 30 days to amend their complains.

Netflix shares fell 76% between early July and late October 2011, to $74.25 from $304.79, due in large part to its decision to suspend a pricing plan that let subscribers stream movies online and receive DVDs for $9.99 a month. Instead, the Los Gatos-based company now offers separate streaming- and DVD-only plans for $7.99 a month each. That plan-which meant a 60% price hike for both services-drove away 800,000 U.S. subscribers in 3Q 2011.

Shares have have been recovering since August however, boosted in part by the company’s surprise profit in Q4 2012, when it added nearly 4 million streaming customers around the world. Shares of Netflix closed Thursday at $187.40 on the Nasdaq.