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Netflix, Inc. (NFLX) Message Board

  • tagetlocman tagetlocman Nov 2, 2012 8:49 AM Flag

    Isn't the point of running a business to make money?

    Or is it to grow subscribers, hide debt off balance sheet and cash stock options?

    Just checking.

    Sentiment: Strong Sell

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    • Here is the consolidated Law suit on fraud by Insider scam gang at Netflix.....

      UNITED STATES DISTRICT COURT
      NORTHERN DISTRICT OF CALIFORNIA
      IN RE NETFLIX, INC., SECURITIES
      LITIGATION
      ________________________________
      This Document Relates To:
      ALL ACTIONS.
      )
      )
      Case No. 3:12-cv-00225-SC
      CLASS ACTION
      CONSOLIDATED CLASS
      ACTION COMPLAINT FOR
      VIOLATIONS OF THE FEDERAL
      SECURITIES LAWS
      DEMAND FOR JURY TRIAL
      Honorable Samuel Conti

      TABLE OF CONTENTS
      I. NATURE OF THE ACTION ........................................................................ 1
      II. JURISDICTION AND VENUE .................................................................... 5
      III. PARTIES ....................................................................................................... 6
      A. Lead Plaintiffs ..................................................................................... 6
      B. Defendant Netflix ................................................................................ 7
      C. The Individual Defendants .................................................................. 8
      IV. CLASS ACTION ALLEGATIONS ............................................................ 11
      V. SUBSTANTIVE ALLEGATIONS ............................................................. 13
      A. Background ....................................................................................... 13
      1. Netflix is Established As An Online DVD Rental Service .... 13
      2. Netflix Introduces Instant Streaming in 2007 ......................... 14
      3. By 2010, Netflix Begins Its Transition Away From
      DVDs And Towards Streaming .............................................. 16
      B. Netflix Changes its Core Strategy to Become “Primarily a
      Streaming Company” ........................................................................ 17
      C. Defendants Repeatedly Emphasized the Purported Benefits of
      Netflix’s “Virtuous Cycle”: More Subscribers = More Content
      = More Subscribers ........................................................................... 21
      D. Netflix Discloses Only “Averaged” Data for the Streaming and
      DVD Business ................................................................................... 25
      E. The SEC Demands That Netflix Provide Additional
      Information About Its Streaming Business ....................................... 27
      1. The SEC Demands More Segment Specific Information ....... 27
      2. The SEC Demands Greater Regulation S-K Disclosures ....... 29
      F. Defendants Were Tracking And Monitoring the Profitability of
      Netflix’s Streaming Segment ............................................................ 31
      1. Even Before the Class Period, Netflix Tracked And
      Monitored Discrete Segment-Specific Information ................ 31
      2. Certain Disclosures in Netflix’s SEC Filings Raise a
      Strong Inference that Defendants Were Tracking And
      Monitoring the Profitability of the Company’s Streaming
      Segment ................................................................................... 33ii
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      CONSOLIDATED CLASS ACTION COMPLAINT - 3:12-CV-00225-SC
      3. Defendants’ Undertaking of Certain Critical Business
      Decisions Demonstrate that they were Separately
      Tracking and Monitoring the Profitability of Netflix’s
      Streaming Segment ................................................................. 35
      G. Defendants Ultimately Reveal that the Streaming Business
      Only Carried An 8% Contribution Margin ....................................... 37
      VI. NETFLIX’S FINANCIAL STATEMENTS WERE MATERIALLY
      MISSTATED IN VIOLATION OF GAAP AND SEC DISCLOSURE
      RULES ......................................................................................................... 41
      A. Netflix Violated GAAP By Failing To Report the Domestic
      Streaming and DVD Businesses as Separate Operating
      Segments in the Notes to its Class Period Financial Statements ...... 42
      1. GAAP Criteria Triggering Segment Reporting ...................... 44
      2. Netflix’s Domestic Streaming Business Met the ASC 280
      Criteria Requiring Segment Reporting ................................... 45
      a) The Domestic Streaming Business Generated Its
      Own Revenues and Incurred Its Own Expenses
      Separate and Apart From Those of the DVD
      Business ........................................................................ 45
      b) Management Reviewed Discrete Information for
      the Streaming Business During the Class Period ......... 46
      c) Domestic Streaming Exceeded the Quantitative
      Threshold For Segment Disclosure .............................. 49
      3. GAAP and SEC Rules Prohibited Netflix’s Aggregation
      of the Domestic Streaming and DVD Operations for
      Segment Reporting Purposes .................................................. 51
      B. Netflix Violated SEC Regulation S-K Item 303 By Failing to
      Make Required Domestic Streaming Segment Disclosures in
      Management’s Discussion and Analysis ........................................... 53
      C. Netflix Violated SEC Regulation S-K Item 303 By Failing to
      Report Known Trends and Uncertainties Required in
      Management’s Discussion and Analysis ........................................... 55
      VII. ADDITIONAL SCIENTER ALLEGATIONS ........................................... 56
      A. While Inflating the Price of Netflix’s Stock, Defendants
      Engaged in Massive Insider Selling .................................................. 56
      1. Insider Stock Sales By Hastings, McCarthy, and Wells
      During the Class Period Were Highly Unusual and
      Suspicious ............................................................................... 56 iii
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      CONSOLIDATED CLASS ACTION COMPLAINT - 3:12-CV-00225-SC
      a) Methodologies Employed to Analyze Defendants’
      Insider Sales .................................................................. 57
      2. The Dollar Amount of Shares Sold by Defendants During
      the Class Period Was Suspiciously High ................................ 60
      3. Defendants Generated Unusual and Suspicious Abnormal
      Profits on their Sales of Netflix Stock .................................... 63
      4. The Timing of Defendants’ Increased Stock Sales,
      Coinciding with Their Causing the Company to Initiate
      Major Stock Buybacks Further Demonstrates the
      Suspicious Nature of the Sales ................................................ 68
      B. Imputed Knowledge of Facts Critical to Core Operations ................ 74
      C. GAAP and SEC Disclosure Obligations ........................................... 75
      D. Defendants’ Knowing Refusal to Provide Material Streaming
      Metrics to the SEC ............................................................................ 76
      VIII. NETFLIX’S FALSE AND MISLEADING STATEMENTS ..................... 77
      IX. THE TRUTH IS REVEALED .................................................................. 103
      1. The September 1, 2011 Partial Disclosure ............................ 103
      2. The September 15, 2011 Partial Disclosure .......................... 105
      3. The October 24, 2011 Disclosures Reveal the Disparate
      Contribution Profits of the DVD and Streaming
      Businesses ............................................................................. 107
      X. POST CLASS PERIOD EVENTS ............................................................ 110
      XI. LOSS CAUSATION/ECONOMIC LOSS ................................................ 112
      XII. LEAD PLAINTIFFS ARE ENTITLED TO A PRESUMPTION OF
      RELIANCE ................................................................................................ 116
      XIII. THE SAFE HARBOR PROVISION IS INAPPLICABLE ...................... 117
      XIV. CAUSES OF ACTION .............................................................................. 118
      XV. PRAYER FOR RELIEF ............................................................................ 124
      XVI. JURY TRIAL DEMAND .........................

      Sentiment: Strong Sell

      • 1 Reply to singhlion2001
      • Lead Plaintiffs Arkansas Teacher Retirement System and State-Boston
        Retirement System (together, “Lead Plaintiffs”), individually and on behalf of all
        other persons and entities who purchased or acquired the common stock of Netflix,
        Inc. (“Netflix” or the “Company”) during the period between October 20, 2010 and
        October 24, 2011, inclusive (the “Class Period”), and who were damaged thereby,
        hereby allege the following based upon personal knowledge as to themselves and
        their own acts, and upon information and belief as to all other matters.
        Lead Plaintiffs’ allegations are based on Lead Counsel’s investigation,
        which included, among other things: (i) a review and analysis of Netflix’s public
        filings with the U.S. Securities and Exchange Commission (“SEC”); (ii) a review
        and analysis of research reports issued by financial analysts concerning Netflix;
        (iii) a review and analysis of other publicly available information concerning
        Netflix and its senior officers and directors, including Reed Hastings, David Wells
        and Barry McCarthy (collectively, the “Individual Defendants”); (iv) interviews
        with former Netflix employees on a confidential basis, each of whom have
        specific, personal knowledge of the facts alleged herein; and (v) discussions with
        and analyses prepared by consulting experts. Many of the facts supporting Lead
        Plaintiffs’ allegations are known only by Netflix and the Individual Defendants
        (collectively, “Defendants”), or are exclusively within their custody and control.
        Lead Plaintiffs believe that substantial additional evidentiary support will be
        revealed after a reasonable opportunity for discovery.
        I. NATURE OF THE ACTION
        1. This securities class action arises from material misstatements and
        omissions concerning the disparate profitability between Netflix’s streaming
        segment—which Defendants touted as its “core” business strategy—and the
        Company’s legacy DVD segment, which was supposedly nothing more than a 2

        CONSOLIDATED CLASS ACTION COMPLAINT - 3:12-CV-00225-SC
        “fading differentiator.” In reality, as investors eventually learned, the streaming
        segment carried a mere 8% contribution profit.
        1
        2. Netflix purports to be the world’s leading internet subscription service
        for viewing TV shows and movies, and offers subscription plans to (i) “stream”
        such content over the Internet to subscribers’ TVs, computers and media devices,
        (ii) rent standard definition DVDs and high definition blue-ray disks (collectively,
        “DVDs”) that are delivered and returned by mail, or (iii) a combination thereof.
        3. On October 20, 2010, the first day of the Class Period, Hastings
        proclaimed that Netflix was “by every measure . . . primarily a streaming company
        that also offers DVD-by-mail,” and represented that Netflix’s “evolution to a
        streaming company has just been phenomenal.” Further, Hastings claimed that
        Netflix was already reaping the benefits of a “virtuous cycle,” whereby the
        Company was “acquir[ing] more streaming content which helps grow [Netflix’s]
        subscriber base and lessen[s] [Netflix’s] DVD-by-mail expense, which in turn
        provides [Netflix] with greater financial resources to acquire more streaming
        content, improve the user interface and continue to grow the subscriber base.” In
        shorthand, the Company’s most cited virtuous cycle (the “virtuous cycle”) boils
        down to: more subscribers = more money for content = more subscribers.
        4. Throughout the Class Period, Defendants continued to echo these
        material misstatements, claiming that the “virtuous cycle” referenced above was
        not only enabling the growth and profitability of the Company’s streaming
        segment, but provided the Company with a distinct “competitive advantage.”

        1
        Contribution profit is defined as revenue less cost of revenues and marketing
        expenses. Netflix describes the usefulness of “contribution profit” as follows:
        “Management believes that contribution profit is useful in assessing the relative
        contribution to operating income of each segment by eliminating any allocation of
        Technology & Development and G&A expenses that apply across these segments.”
        (October 24, 2011, Letter to Shareholders). 3

        CONSOLIDATED CLASS ACTION COMPLAINT - 3:12-CV-00225-SC
        Indeed, when a securities analyst asked Hastings whether rising content costs
        would derail this cycle, Hastings specifically represented that Netflix’s “subscriber
        base [wa]s growing fast enough, and DVD shipments [were] growing slow enough,
        that [Netflix could] afford to pay for the existing streaming content [it had], and
        also get more content.”
        5. Beyond these material misrepresentations, Netflix’s publicly filed
        financial statements fraudulently concealed the highly material fact that, contrary
        to Defendants’ misstatements, the streaming segment that had purportedly become
        the Company’s “core strategy,” was, in fact, significantly less profitable than its
        “fading” DVD segment. Defendants did so by improperly aggregating the reported
        financial data for Netflix’s streaming and DVD segments—including its costs and
        revenue—in direct violation of SEC disclosure rules and U.S. Generally Accepted
        Accounting Principles (“GAAP”). In addition, Defendants further concealed the
        information required under Regulation S-K regarding known trends and
        uncertainties.
        6. Fueled by these material misstatements and omissions, Netflix’s stock
        price soared to all-time highs, nearly doubling in price between the first day of the
        Class Period and July 2011, when it closed at $298.73 per share. In fact, just one
        day into the Class Period, Netflix’s stock price increased from $153.15 per share to
        $172.69 per share upon Defendants’ announcement that Netflix was “by every
        measure primarily a streaming company” and that this “evolution . . . has just been
        phenomenal.” In turn, securities analysts issued a series of highly positive reports
        that characterized Netflix’s streaming segment as “compelling,” and highlighted
        the benefits that the Company was purportedly deriving from its virtuous cycle.
        7. Lead Plaintiffs’ investigation has uncovered specific facts which
        demonstrate that Defendants were tracking and monitoring operating metrics for

        Sentiment: Strong Sell

    • Well it just seems so strange with so many people speaking of companies readying billions of dollars to buy NFLX, a company with massive off balance sheet debt coming due within 2 years, almost non-existant growth potential, and little to no earnings. Just trying to figure out why Icahn or MSFT or anybody thinks it's a good idea to pay 60, 70 or $90/share for such a company, and what exactly are they buying besides a name and a customer list?

      Sentiment: Strong Sell

      • 1 Reply to tagetlocman
      • Wow, people on these boards are extremely dumb. Netflix has over 30 million happy paying customers and 2013 is going to be netflixs best streaming year yet. Facebook has repeat visitors who pay, what, oh yah, zero for their service. Recently, Hulu was bought for $200 million, nearly, $1000 per sub. Do the math, idiot. Netflix is worth at least three times what it's Market cap is. Quit losing money on your pathetic tiny amount you short. Read what's going on.

        Sentiment: Strong Buy

    • I thought the point of running a business was to get all the inside information and then pass the information to your buddies on the golf course. After the inside info. pans out, your buddies would wire a portion of the profits to an off-shore bank using their IPhone.

      Sentiment: Buy

    • The MAIN goal or running a company (even more after 2000) is to fill, , to load as much as they can the exec/insiders pockets...

      The principal toy used is now stock options..... best exemp-le is AZO.... since some years they bb more stocks in value(a lot more) then they made money... they borrowed billions to push the stock and to fill exec/insiders pockets.... this pattern is became a BIG joke and it's creating fraud accounting.....

      Gee, it almost became funny.....

 
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