Markets

Shares of Shopify drop on surprise loss, but Cramer says you'll regret selling

Key Points
  • Shopify posted an earnings loss of 25 cents in the third quarter, missing analysts' estimates of 11 cents gain, according to FactSet.
  • However, CNBC's Jim Cramer said investors will regret selling Shopify as the company ramps up spending to grow.
  • Shopify said in June it planned to spend over $1 billion for more fulfillment centers.
  • The EPS miss was driven largely by "a significant one-time tax item," says Colin Sebastian, senior research analyst at Baird.
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Jim Cramer: Investors will regret selling Shopify

Shares of Canadian e-commerce company Shopify dropped after reporting a surprise loss on earnings.

The stock slipped 3.8% on Tuesday after Shopify posted an earnings loss of 25 cents in the third quarter, missing analysts' estimates of 11 cents gain, according to FactSet.

However, CNBC's Jim Cramer said investors will regret selling Shopify as the company ramps up spending to grow.

"They have a loss but they are spending money in order to grow," Cramer said on "Squawk on the Street" on Tuesday. "I defy Shopify, defy the sellers of Shopify. You will regret that you sold it. You don't know what you are doing. I like the stock."

Shopify said in June it planned to spend over $1 billion for more fulfillment centers to compete with Amazon and EBay. Total operating expenses in the third quarter rose to $252.4 million from $181.1 million a year earlier.

The EPS miss was driven largely by "a significant one-time tax item," Colin Sebastian, senior research analyst at Baird, pointed out in a note on Tuesday.

Baird has a 12-month price target of $410 on Shopify, which would represent a 36% gain.

The price target is derived from a "combination of 16x our 2021E revenue estimate and a multi-year DCF, near the high end of SaaS valuations (20x+ 2020E sales), which we believe is warranted given Shopify's scale, massive market opportunity, and engineering sophistication," Sebastian said.

— CNBC's Michael Bloom contributed reporting.