Twitter apologizes for massive hack as revenue slumps, users soar

Twitter CEO Jack Dorsey on Thursday sought to quell security concerns about the social network during the company's earnings call a week after hackers hijacked the accounts of high-profile politicians, celebrities and businesses to peddle a cryptocurrency scam.

"Last week was a really tough week for all of us at Twitter. We feel terrible about the security incident that negatively affected the people we serve and their trust in us," Dorsey said on a call with Wall Street analysts. "We fell behind both in our protection duties and restrictions on our internal tools, and for that I apologize."

Dorsey and CFO Ned Segal offered no new details on the security breach as they discussed Twitter's second-quarter earnings and looked ahead to the rest of the year. The hack occurred two weeks after the end of the quarter, the first full reporting period during which economies worldwide felt the disruptions of the coronavirus pandemic.

During the three months that ended June 30, Twitter took in $683 million in revenue, below the $707.5 million that analysts surveyed by Thomson Reuters expected and down 19% year over year. Twitter lost 16 cents per share, missing Wall Street expectations for the company to break even.

Advertising, which accounts for the bulk of Twitter's revenue, brought in $562 million during the quarter, down about 23% year over year. Twitter said it saw a moderate recovery in ad spending during the last three weeks of the quarter.

Besides the effects of the pandemic, Twitter also pointed to advertiser skittishness during widespread protests in the US in June following the police killing of George Floyd in Minneapolis on Memorial Day.

Still, the company reported 186 million daily active users -- those who can see ads -- during the second quarter, up 34% from the same period last year. (Some people also view tweets, including ones embedded in news articles, without logging into the site.) Twitter had 166 million "monetizable daily active users" in the first quarter.

Segal noted that with professional sports starting back up in the current quarter, Twitter hopes for good returns on "our opportunity to be the stadium" for people as conversations, sponsorships and advertising revive.

The spike in users helped push Twitter's shares roughly 4.75% higher to $38.69.

The Twitter hack

Last week's hack of Twitter was a spectacular and very public incident. Former President Barack Obama, Democratic presidential candidate Joe Biden and Microsoft co-founder Bill Gates were some of the prominent Twitter users whose accounts were taken over by hackers on July 15. Celebrities such as Wiz Khalifa, Kanye West and Kim Kardashian West were also targeted. 

Hackers had "manipulated a small number of employees and used their credentials" to access internal systems and bypass security protections on the accounts, such as two-factor authentication, Twitter said last week. They targeted 130 accounts but were only able to log into 45 accounts after resetting passwords. 

The hackers also downloaded data that may have included direct messages from up to eight accounts. None of those accounts was verified, meaning they weren't the accounts of prominent politicians or celebrities. Other information may have been accessed on hijacked accounts. The investigation is ongoing.

"We're still working through all the details on the security issue," Segal said on Thursday's call, "and we'll keep people posted as we have on Twitter over the last couple weeks as our work has unfolded." 

On Wednesday evening, Twitter said that direct messages of 36 accounts, including a Dutch politician, were accessed during the hack.

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Security problems and financial performance aren't the only issues that Twitter faces. During the second quarter, the company started applying new labels on tweets that spread misinformation or that violate its terms of service. The labels haven't been used extensively so far. But Twitter has slapped labels on President Donald Trump's tweets about mail-in ballots and violence against protesters. 

Misinformation and conspiracy theories continue to spread on the platform. Twitter, which relies on automated technology to identify bad information, has accidentally labeled accurate tweets in its attempt to call out a false conspiracy theory concerning 5G and coronavirus. 

Meanwhile, the company has been testing new features, including letting users choose who can reply to their tweets and giving users the ability to tweet audio clips.

With behind-the-scenes work now completed on its advertising platforms and with a revved-up ability to develop new products, Twitter could have more changes in the pipeline soon, executives said on the call. Dorsey noted that Twitter is in the "very, very early phases" of exploring a number of ideas tied to lines of revenue that would complement advertising.

"We do think there's a world where subscription is complementary, we think there's a world where commerce is complementary," Dorsey said. "You can imagine work around helping people manage paywalls as well that we believe is complementary."

"We're now at a place where we can explore other ideas," he said, "and you will likely see some tests this year."