What is gross margin, and why did a small dip in it matter so much for Fortinet this week?

Gross margin is the share of each sales dollar a company keeps after paying the direct costs of making or delivering what it sells, called cost of goods sold (COGS). The formula is (revenue minus COGS) divided by revenue, times 100. If a company sells $100 of goods that cost $60 to make, it keeps $40, which is a 40% gross margin. That money still has to cover salaries, marketing, research and taxes before any profit is left. Gross margins differ a lot between industries, so they're most useful when you compare a company with its own past or with close peers.

A real example from Wednesday, Oct 28: cybersecurity company Fortinet reported third-quarter revenue of $2.08 billion, up 20% from a year earlier, and beat analysts' revenue and earnings estimates. But its gross margin slipped to 79.0% from 80.8% a year ago, and its adjusted (non-GAAP) gross margin of 79.6% came in below the 80.1% analysts expected, per CNBC citing LSEG. Reports also pointed to slower growth (20%, down from 26% the quarter before) and a lower full-year service revenue forecast. After closing at $174.08, the stock fell about 25% in after-hours trading. A 1.8-point dip sounds small, but on $2.08 billion of quarterly revenue, each point is roughly $21 million, and investors watch the trend because a shrinking margin can mean costs are rising faster than prices.

The takeaway is that gross margin is one piece of the picture, not the whole story. It's best read together with revenue growth, operating margin and guidance, and after-hours moves can look different by the next open. This is education, not trade advice. Got questions about reading an earnings report? Ask below, there are no silly questions here.

Sources: Fortinet Q3 2026 earnings press release (Oct 28, 2026); CNBC after-hours movers (Oct 28, 2026); Benzinga (Oct 28, 2026); AWP Alliance News (Oct 28, 2026); Investopedia "Gross Margin".