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Snap flops with disastrous Q3 earnings that send shares diving (SNAP)

Snap Inc. missed Wall Street's expectations for its third-quarter earnings on Tuesday with only 4.5 million new users. Its stock dove in after-hours trading.

  • Snap badly missed expectations for its third quarter as a public company. Its stock dove as a result.
  • Snapchat added 4.5 million users, up merely 3% from the previous quarter. A complete redesign of the app is planned to address the stagnant growth.
  • Snap took a $40 million charge for misjudging the demand for its Spectacles glasses with excess inventory.

stock plunged in after hours trading on Tuesday after the company reported a disastrous Q3 report that revealed widespread weakness throughout the business just nine months after its splashy debut on the public markets.

The company reported smaller than expected user growth, a 60% drop in advertising rates and a hefty charge due to an overambitious entry into the hardware market.

And, Snapchat's 27-year-old CEO and founder Evan Spiegel acknowleged, the flagship mobile app that's all the rage with teens and Millennials is too confusing for a lot of other people to use — limiting the company's growth prospects.

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Shares of Snap were down roughly 17% at $12.55 in after hours trading on Tuesday, well below its $17 IPO price.

"This quarter was soft across basically every metric as it speaks to a business model which is in a state of major transition since going public," wrote GBH Insights analyst Dan Ives in a note to investors following Tuesday's earnings report.

Investor patience, he said, is "starting to wear very thin."

Here are the key numbers from Snap's Q3 earnings:

  • Revenue:
  • Earnings per share (adjusted):
  • Daily active users:
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Snapchat added only 4.5 million new users versus the 8 million expected by analysts for the quarter, a sign that its growth is continuing to slow under mounting competitive pressure from Facebook-owned Instagram.

Snap said that its shift to programmatic advertising earlier this year has "made it harder to grow revenues at the rate we would have liked," with its ad rates dropping sharply by 60% from the year-ago period. Overall ad impressions were up sharply as Snapchat opened up its app to automated advertising services.

The young company admitted to misjudging the success of its first hardware product, Spectacles. A lack of demand for the camera-equipped glasses resulted in a $40 million charge due "to excess inventory and purchase commitment cancellations."

To kick-start user growth, CEO Evan Spiegel said in prepared remarks shared with investors that the Snapchat app would be redesigned to make it "easier to use," a change the company predicts to "be disruptive to our business in the short term."

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Wall Street's revenue expectations for Snap have been cut in recent months due toslower than expected momentumaround its self-service platform for advertisers. Last month, research firm eMarketerslashed its 2017 Snap revenue projectionfor the second time this year.

Snap has already had multiplerounds of layoffsand plans to slow hiring in 2018, according to an internal email sent by CEO Evan Spiegel to employees andobtained by Business Insider last month. The company had $2.3 billion in available cash at the end of the third quarter but has significant business costs to contend with, like its $2 billion, five-year commitment to use Google's cloud hosting service.

Business Insider covered the highlights from Snap's earnings call with executives below:

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