What happened

Netflix (NASDAQ:NFLX) shares were flying higher today after investors woke up to a full-throated endorsement from Goldman Sachs. Analyst Heath Terry raised his price target on the stock from $540 to $670, and once again said it was on his Conviction Buy list.

The stock was up 7.2% as of 2:57 p.m. EDT.

A receptionist at the Netflix office

Image source: Netflix.

So what

With second-quarter earnings on tap next Thursday, Netflix shares have been rallying into record territory as analysts weigh in with mostly bullish calls ahead of the report. Terry is the latest to join the pack.

The analyst said he expects the streamer to deliver results well above the consensus, calling for at least 12.5 million subscriber additions in Q2, easily beating the company's own guidance at 7.5 million.

Terry's research shows that quarterly app downloads hit a new record in the quarter, and growth in app downloads was the highest since 2016 as much of the world is spending more time at home due to the COVID-19 pandemic. The Goldman analyst also expected Netflix to outperform expectations in the second half of the year as well.

Another analyst note came this morning that was less bullish on the streaming giant: Piper Sandler said its research found that Netflix's subscriber additions were in line with guidance in the quarter. However, Wall Street seemed to focus on the Goldman note, which may be the most bullish one yet, calling for roughly 35% upside from yesterday's closing price.

Now what

Indeed, there are a number of reasons to expect Netflix to top guidance when it reports earnings next week. The economic recovery from the pandemic has stalled in the U.S. with bars and restaurants closing again. Live sports have essentially been off the air for all of the second quarter, and the pandemic continues to spread rapidly in places like the U.S., Latin America, and South Asia, meaning consumers are likely to be spending more time at home.

Beyond the near-term tailwinds from COVID-19, the entire industry may be shifting to Netflix's turf as pressure is mounting on movie theaters, which have now been closed since March, and linear TV networks, which have seen vital advertising revenue dry up. 

Given those circumstances, it's not hard to see why Goldman is taking such a rosy view of the streaming leader.