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Snap's first earnings report shows Facebook's copycat strategy is working

  • Company faces all-out assault from Facebook
  • Slow user growth and disappointing revenue sent the stock down more than 20%

Snap's first earnings report as a public company suggests Facebook's strategy of copying the innovative features of its upstart rival is working.

Snap reported late Wednesday first-quarter revenue that fell short of analysts' estimates, while user growth slightly missed expectations. The company's shares plunged more than 20 percent after the report.

Snapchat has built a loyal following of young users, mostly in the U.S. and Europe, thanks to disappearing messages and tools that make photos and videos more entertaining. But user growth started to slow dramatically in Q4 of last year after Facebook rolled out an update to its Instagram product called Instagram Stories, which duplicated many of the features of Snapchat.

That relatively slow growth continued in Q1, as Facebook added similar copycat features, such as disappearing messages and filters, to its core product.

Snapchat added only 8 million users to its average monthly user count during the quarter, going from 158 million to 166 million.

Over the same period, Facebook added only 2 million in the United States (going from 180 million to 182 million), but added 57 million worldwide, according to its quarterly earnings filing.

Here's a chart of Snapchat user growth:

In a sign that it's feeling the pressure from Instagram, Snapchat this week started allowing users to view video messages for longer than 10 seconds.

That suggests it's willing to change even core features in hopes of luring more mainstream advertising.

Disclosure: NBC Universal, the parent company of CNBC.com, owns a stake in Snap.