Tech Transformers

Facebook shares to fall 30% as blowout quarter ‘as good as it gets’: Analyst

Facebook Q3 earnings beat

Facebook's latest expectation-beating quarter is "as good as it can get" for the company, according to one analyst, who predicts shares could fall 30 percent in the next six months with the market at the "height of insanity" with social media stocks.

The social networking giant beat analyst forecasts on earnings per share in the third quarter late Wednesday with advertising revenues rising 59 percent year-on-year. Monthly active users grew 16 percent to 1.79 billion, while for the first time, more than 1 billion users were active only on their phones every month.

But Facebook shares fell over 7 percent after hours and were down nearly 6 percent in pre-market trade after Chief Financial Officer David Wehner said ad revenue growth could slow "meaningfully" in 2017.

Trip Chowdhry, managing director of equity research at Global Equities Research, said this is the top for the company.

"If you think about this quarter, it's as good as it can get because two major events happened in a single quarter. You have U.S. elections and the Olympics. This is not going to repeat for the next four years," Chowdhry told CNBC.

"They also had a tailwind because Yahoo was acquired by Verizon and the advertisers on Yahoo are moving away."

‘Selling a dream’

No surprise Facebook struggling to sustain ad growth: Pro

Chowdhry is a known bear on many stocks in the social media space. He argued that Facebook had hit its peak because the novelty of it was turning into fatigue and advertising was not very effective on the platform.

Facebook announced that it had over 4 million active advertisers on Facebook and over 500,000 active advertisers on Instagram, and reported that "more and more of them" are using the company's full range of ad products.

But the social networking giant said that it has maximized "ad loads" – or the volume of ads that it can cram in to a user's news feed. As such, the company is focusing on growing users and engagement. One tactic for this is the company's focus on video which could be featured more heavily in a user's news feed.

Chowdhry questioned the company's video plans saying that in many emerging countries, mobile data tariffs were expensive.

"This is a classic case of peak, when people are selling a dream that's completely distorted," the analyst said, adding that in six to eight months from now, the stock would trade in the $80-$90, a 37-29.5 percent decrease from current levels.

‘Massive growth opportunities’

But Chowdhry's view is contrarian with the majority of the market bullish on Facebook's shares. The stock currently has 16 strong buy ratings, 29 buys, 3 holds and one sell, according to Reuters. On Thursday, Susquehanna and Raymond James both raised their target price to $160 from $155. Deutsche Bank slashed its price target to $150 from $170.

Analysts are optimistic about the future prospects with the likes of Facebook-owned Instagram only beginning to be monetized and lots of potential with Messenger.

"We believe that there are a number of massive growth opportunities for Facebook, and investing in the biz is the right strategy to accelerate monetization in areas like video, messaging, virtual reality, and more," Mizhuo analyst Neil Doshi wrote in a note on Thursday.

If Facebook falls in trade on Friday, it could be an interesting buying opportunity.

"I am uber-bullish. I think if the stock is down it's a compelling opportunity to buy into the stock. You now have 1 billion users accessing Facebook only on mobile. Where can you find a large cap growth stock delivering 50 percent plus top line growth every quarter?," Neil Campling, head of global TMT research at Northern Trust Capital Markets, told CNBC by phone.