Red Hat

(RHAT)

is taking a beating Thursday, as investors frown over news that the company's takeover of JBoss will take longer than expected to pay off.

In recent trading, shares were off $2.16, or 8.6%, to $22.85.

The rough treatment on Wall Street followed a complex and rather confusing earnings call after Wednesday's close in which Red Hat posted strong first-quarter results, and issued higher guidance for the year. But the company also said that it will need to add more infrastructure to support JBoss, purchased for $350 million (plus an additional payment linked to future performance) in April.

Strong sales of its Linux software helped Red Hat boost first-quarter revenue by 38%.

Total revenue for the May quarter was $84 million, while subscription revenue increased by 45% compared to the same quarter last year.

Red Hat posted a profit of $13.8 million, or 7 cents a share. A year ago, net income was $12.4 million, or 7 cents a share. But the company said earnings for the quarter are not comparable because it has begun expensing stock options.

For the same reason, Wall Street's earnings expectations of 9 cents a share may not be comparable. Analysts were looking for revenue of $83.3 million.

Options cost the company $7.63 million, or about 2 cents a share, said Dion Cornett, Red Hat's vice president of investor relations. According to Cornett, the comparison with First Call is also difficult because some analysts included the options expense while others did not, and there were various tax-related differences within First Call's poll.

If options expenses, tax rate changes and the impact of the conversion of a $570 million convertible debenture are taken into account, the company would have posted a non-GAAP profit of 14 cents a share, according to Cornett.

Cornett, a former sell-side analyst, said in an interview that the company believes some investors have been confused by the accounting issues, and he and CEO Matthew J. Szulik were planning a series of meetings this week to address their concerns.

The company raised revenue guidance for the full year to a range of $400 million to $405 million; it had been $370 million to $375 million. The higher numbers include about $24 million in revenue from JBoss, an open source software company that sells a popular piece of middleware called an application server.

But because JBoss has a higher proportion of lower-margin services and training businesses than does Red Hat, gross margins are expected to decrease by 75 basis points to 83.25% during this quarter, and then stabilize. Analysts had forecast annual revenue of $384.4 million. Szulik also noted that it will need to spend somewhat more than expected to boost the infrastructure of the acquired company.

In the current or second quarter, the company forecast revenue ranging from $96 million to $98 million. Red Hat does not give EPS guidance. Wall Street was looking for revenue of $92.4 million.

Shares of Red Hat have followed the lead of the broader

Nasdaq

this year, losing 7% of their value since January. Even so, an investor who bought shares a year ago would have earned a return of 104%. In the last 52 weeks, the shares have traded in a wide range -- from a low of $12.20 to a high of $32.48. As of Tuesday, the company was trading at 64 times forward earnings, while larger rival

Novell

(NOVL)

is valued much lower -- 48 times earnings.