Netflix Price Hike Furor Dying Down With Disney Content Set To Debut Soon

Shares of Netflix, Inc. NFLX were trading higher by nearly 3 percent on Thursday. Youssef Squali of Cantor Fitzgerald reiterated a Buy rating and $120 price target.

Squali argued in a report that Netflix's stock is looking favorable following the "underwhelming" ratings from the Rio Olympics. The analyst suggested that the "lethargic viewership" could be good news for Netflix, as the company cited the Olympics as a potential headwind to its user engagement in the third quarter.

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Squali continued that the un-grandfathering of the $7.99 and $8.99 price plans - the bulk of which will end by November - could imply that churn will peak in the third quarter and begin to normalize as of the fourth quarter. In fact, the analyst suggested that Google Trends already indicate the "frenzy around the price hike may be dying down" already.

Finally, the analyst argued that Netflix's agreement with Walt Disney Co DIS will kick in next month and Disney's content will launch on the streaming platform. The Disney deal gives Netflix exclusive access to stream theatrical releases, including "Zootopia," "The Jungle Book" as well as "Captain America: Civil War."

Bottom line, while Netflix's valuation appears high on fiscal 2016 and 2017 estimates, the company's normalization of investments and improving profitability in the international segment throughout 2017 will make the stock more "palatable."