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Investments in Germany and India Are Paying Off for Netflix, Inc. (NFLX)

Wayne Duggan

The early results are in, and at least one Wall Street firm is now convinced that Netflix, Inc. (ticker: NFLX) may be doing better in international markets than originally expected. On Wednesday, Jefferies analyst John Janedis upgraded Netflix from "underperform" to "hold" and raised the firm's price target for the stock by more than 40 percent to $135.

Jefferies' newfound optimism comes from the firm's latest checks on Netflix's performance in international markets, particularly the key regions of Germany and India. According to Janedis, a large-scale customer survey in both countries revealed that Netflix may not be running up against as much local competition as originally anticipated.

"The growth opportunity appears larger than we had expected, as original content is performing well, mobile consumption is growing, competition appears limited and the pricing plan is gaining traction," Janedis says.

The survey results indicate that Netflix's two-pronged growth approach of investing heavily in international expansion and original content may already be paying off. The company plans to invest $6 billion in original content this year.

CEO Reed Hastings recently says the company is putting $1.75 billion into European productions. And India is also clearly a critical market. "In 2017, we'll be working on making our Indian service better in every dimension," Hastings said during his first official trip to India earlier this year.

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Netflix recently announced new partnerships with Airtel, Videocon d2h and Vodafone to help tackle one of the largest global markets.

Jefferies reports that both Netflix and rival Amazon.com ( AMZN) are both likely gaining market share from local providers in India and Germany. Survey results reveal that 74 percent of Indian respondents subscribe to Amazon Prime Video, while 63 percent of respondents subscribe to Netflix. In Germany, reported subscription rates are 67 percent and 45 percent, respectively.

The survey also revealed that only 6 percent of Netflix subscribers in India would not be open to an increase in subscription price down the line, suggesting Netflix has substantial pricing power in the region.

Finally, more than half of subscribers in both India (58 percent) and Germany (66 percent) indicated that they enjoy watching Netflix original content the most while using the platform.

"As NFLX offers a limited amount of local content (for now -- relative to local platforms), the outperformance of originals across multiple regions has been a key local growth driver," Janedis says.

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Jefferies has now raised its 2017 subscriber growth projections for Netflix from 12.5 million net additions to 13.5 million.

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