"Revenue growth deceleration coupled with the company’s long-term margin guidance does not provide a meaningful near-term path for outperformance," the analyst wrote in a research note. Slowing growth combined with continued regulatory scrutiny is a "toxic brew," Nathanson wrote.
For Facebook to regain its mojo, the company will have to beat its forecasts and assuage concerns about regulatory and antitrust risks, Nathanson said.
Facebook has a history of giving conservative forecasts and exceeding expectations, said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group Inc. In addition to spending less than projected, Facebook needs to demonstrate that it can generate more revenue from its WhatsApp and Instagram businesses.
"We think that the bear case won’t fully play out the way management presented it," said Benowitz, whose firm owns Facebook shares. "It’s hard to grow your expenses 50 percent."
Gerber remains skeptical. While his firm still owns Facebook shares, he’s reduced his exposure to the stock and plowed the proceeds into Alphabet.
Facebook has been a "hugely profitable investment for us," Gerber said. "But I think that government regulation is coming and their business is never going to be the same."
Still, the majority of Wall Street remains bullish. The stock has 40 buy ratings, 6 holds and 2 sells, according to data compiled by Bloomberg. The average price target is $206, representing an implied gain of more than 20 percent from current levels.
This article was provided by Bloomberg News.