Editor's Note: This article was originally published at 10 a.m. on Real Money on July 15. Sign up for a free trial of Real Money.
According to filings made with the Securities and Exchange Commission (SEC), Google (GOOG) (GOOGL) is one of the most widely held stocks in the U.S. market. Investors will be watching the company closely when it reports its second-quarter fiscal 2014 earnings on Thursday after the close.
Since Google missed estimates for the last two quarters, this will be an especially important report. The stock has kept investors awake at night. Year-to-date, the shares are up just 4.7% vs. 6.9% for the S&P 500. If the company doesn't produce an impressive quarter, I'm sure a lot of professional investors will rethink holding a three-time loser.
Many people seem surprised by the weakness in the stock. Folks seem to forget that as early as fiscal 2009, Google had a gross margin of 84.97%. The company ended last year with a margin of 57.72% and it is spending money like crazy.
To support their Strong Buy recommendations, analysts have figured that gross margins will magically climb higher. In fact, this year, gross margins are projected to jump to 65.64%. That's a big jump. How do they get there?
In the fist quarter, margins came in at 61.96%, which was far below the Street estimate of 67.79%. For the second quarter, analysts are at 66.45%. Last year, the company produced a 58.05% margin. An 840-basis-point jump, year-over-year, seems like a something out of a fairy tale.