Alphabet is still the darling of Wall Street after another blowout quarter from the tech beast Tuesday night.
And one line item continues to standout in particular as a key driver of the bull thesis on the stock: operating margins.
Jefferies analyst Brent Thill points out Alphabet's operating profit margins hit 39.2% in the third quarter, up for five straight quarters as the company sees strong momentum behind its search business and YouTube premium. The upward slope in margins comes despite Alphabet continuing to hire aggressively and put money to work in its Other Bets segment, which includes driverless car venture Waymo.
Alphabet's operating margins are now higher than pre-pandemic levels of 27.3% seen in 2019.
"In our view, the core search business is still attracting incremental ad dollars in the shift to digital and mobile. YouTube is the best-positioned platform to take advantage of a huge online video opportunity. And Google Cloud could be the next breakout play for shares," Thill said in a research note to clients.
The analyst raised his price target on Alphabet to $3,500 from $3,325 and maintained a Buy rating on the stock.
As Yahoo Finance's Emily McCormick reports, Alphabet bulls had a lot to like in the quarter other than operating profits.
Search has remained by far the biggest contributor to Alphabet's overall top-line growth, with the business unit growing 44% to bring in $37.9 billion in revenue in the third quarter, before traffic-acquisition costs.
YouTube ad sales grew 43% to top $7.2 billion in revenue in the third quarter. Google Cloud, a competitor to incumbent leaders in the cloud computing space like Microsoft Azure and Amazon Web Services, grew sales 45% to reach nearly $5 billion.
"In our view, the key question for investors is whether growth is endogenous/sustainable; our view is that COVID and iOS ATT are likely bigger factors than MUM or other innovations in GOOGL's strength, but the resurgence of last-click marketing and GOOGL's heightened profile in omni-channel retail are likely to persist alongside what we view as fairly durable shifts in the ecosystem and in consumer behavior," said Wells Fargo analyst Brian Fitzgerald.
Fitzgerald also maintained a Buy rating on Alphabet's stock, and jacked up the price to $3,400 from $3,100.