What happened

It's just two days until Thanksgiving, and investors think they've found their turkey already: Palo Alto Networks (NYSE:PANW).

The internet-security specialist reported its fiscal Q1 2020 earnings last night. While the numbers beat estimates -- $1.05 per share in pro forma earnings on $771.9 million in revenue, versus expectations of $1.03 and $767.8, respectively -- investors are nonetheless selling off the stock today. 

Palo Alto Networks shares are down 11.2% as of 11 a.m. EST.

Blackboard showing arrow going up getting erased and going down instead

Image source: Getty Images.

So what

Why such an unhappy reaction to an earnings beat? After all, Palo not only beat expectations in Q1, but it also reported an 18% increase in sales year over year, with 18% growth in billings to match and 26% growth in deferred revenue.

The answer is partly because Palo Alto's numbers aren't quite as great as they sound. The company's $1.05 per share in "earnings," for example, were of the pro forma variety. Actual GAAP results for the quarter showed a $0.62 per-share net loss -- more than 50% worse than what happened a year ago.

Now what

The company's guidance was also partly responsible for the sell-off. Palo Alto noted that in fiscal Q2 2020 (that's the quarter we're in right now), it expects to record only about $843 million in revenue, below Wall Street's $845 million consensus estimate. Pro forma profits could fall even more, with management guesstimating $1.12 per share pro forma -- but analysts want to see $1.30.

Things could get even worse before they get better. For the full year, Palo Alto Networks gives a sales estimate in line with expectations -- $3.46 billion -- but management predicts profits will be only $4.90 to $5 per share, short of the $5.07 consensus. 

No wonder investors are upset.