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Why I sold all of my Facebook shares: Dan Niles

Dan Niles, chief investment officer of AlphaOne Capital Partners, bought Facebook at under $20 a share. Niles sold his entire stake in the social network over the past few days, though. He didn't even keep his core position.

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In a phone interview Thursday on CNBC's "Closing Bell," Niles explained he had several concerns about the social media company going into its earnings release late Wednesday. He thought expectations were just too high, not to mention worries about user growth and its advertising business.

When Facebook reported earnings, the company said it doesn't plan to increase its number of ads, which Niles said is a key driver of revenue. The only other way to increase revenues is to attract more users or raise advertising rates, he said.

(Read more: Facebook profit beats, but says teens are tuning out)

"Users are slowing down, the number of ads probably is pretty consistent, so now all you've really got left is the pricing lever to pull and so that makes it a lot tougher from here with the stock having really doubled in three months," Niles said.

Still, he remains bullish on the underlying company and would even get back into the stock if it fell far below current levels. For the time being, though, he prefers Google and Yahoo.

Asked about Twitter's upcoming initial public offering, Niles said the micro blogging site is using a valuation that makes a lot more sense than when Facebook went public.

Fundamentally, though, Niles thinks Facebook is a better company than Twitter over the longer term because it does a better job at monetizing its users, has strong growth prospects and generates a profit.

(Read more: Why Twitter's IPO should be more like Facebook's)

By CNBC's Drew Sandholm. Follow him on Twitter @DrewSandholm.

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