Telegram’s Financial Statement Exposes Heavy Reliance on Crypto Assets and Major Financial Struggles

Pavel Durov’s Arrest Shakes Telegram’s IPO Aspirations

In late August, the arrest of Telegram founder Pavel Durov in France significantly disrupted his plans to launch an Initial Public Offering (IPO) for the popular messaging platform within the next two years.

Durov, a Russian-born billionaire, had previously boasted about receiving offers valuing Telegram at a staggering $30 billion.

However, this grand vision was soon called into question as Telegram's financial statements, filed in the British Virgin Islands, revealed a much less optimistic picture.

With revenue of only $342 million and a net loss of $259 million in 2023, the idea of Telegram being valued anywhere near $30 billion suddenly appeared far-fetched.

Despite these revelations, efforts to reach the company for comment received no response.

A Closer Look at Telegram’s Financial Realities

The financial breakdown of Telegram paints a less rosy picture than Durov’s $30 billion valuation claims would suggest.

Telegram’s revenue in 2023 totaled $342,481,000, marking an increase from the previous year’s $228,122,000.

PnL statement, endorsed by Durov and approved by PwC’s Dubai branch in April.

Despite this growth, the company recorded a substantial net loss of $259,275,000, attributed to hefty development and operating expenses.

With 40% of its revenue from its integrated wallet and collectibles sales, Telegram’s future appears closely linked to the volatile cryptocurrency market.

This includes $130,000,000 generated from its "integrated wallet" for cryptocurrency transactions, highlighting the platform’s increasing dependence on digital assets.

Premium subscriptions accounted for $94,093,000 of the revenue, while advertising brought in $70,572,000, and “premium access” to Telegram’s ad platform contributed $30,000,000.

The financial statements obtained by the Financial Times further project Telegram’s heavy reliance on its crypto business, which has become the company’s most significant revenue stream.

Telegram’s venture into selling crypto wallets and collectibles, such as exclusive usernames and custom phone numbers exchanged for Toncoin, generated considerable income.

This dependency on crypto assets is also evident in the company’s balance sheet, where digital assets were valued at $399,196,000—surpassing its cash holdings of $170,850,000.

This figure far exceeds the company’s cash and cash equivalents, reflecting how deeply embedded crypto has become in Telegram’s business model.

Crypto Dominance on Telegram’s Balance Sheet

Telegram’s balance sheet presents an unusual aspect that further cements the company’s reliance on crypto assets.

The digital assets, primarily held in Toncoin, overshadow Telegram’s cash reserves, demonstrating how crucial the cryptocurrency has become to the company’s financial structure.

A peculiar line item titled “revaluation of digital assets” added $502,000 to Telegram’s income, an unusual move since such revaluations typically appear on the balance sheet rather than the income statement.

Additionally, the company reported an $85,996,000 gain on its digital assets, an item marked as “not to be reclassified to profit or loss,” adding another layer of complexity to its financial reporting.

A detailed breakdown of the growth in Telegram’s crypto holdings from last year.

Telegram’s explanation for these figures reveals a deliberate strategy.

The company holds digital assets for long-term capital appreciation, selling them when market conditions are favourable.

This strategy is apparent in the significant chunk of Toncoin holdings that Telegram managed to sell before a noticeable price crash, as indicated in the post-reporting date section of its accounts.

This sale likely helped mitigate some of the financial strain caused by the heavy reliance on digital assets.

Pavel Durov’s Legal Troubles and Telegram’s Future

The arrest of Pavel Durov in France on August 24, 2024, brought a wave of uncertainty to Telegram’s future.

Durov was detained at Le Bourget airport near Paris, facing serious charges including terrorism, drug trafficking, fraud, and money laundering, as well as accusations of facilitating illicit transactions and allowing the dissemination of child pornography through Telegram.

These charges could result in Durov serving up to 10 years in prison, according to reports from AFP.

The fallout from Durov’s legal troubles has already impacted the cryptocurrency market, particularly Toncoin, which saw a sharp decline in value following the news of his arrest.

Despite the turmoil, Toncoin traders have not entirely lost faith in the cryptocurrency.

Futures traders have been hedging their bets on the asset’s price, anticipating potential rebounds depending on how the situation unfolds.

At the time of publication, Toncoin was trading at approximately $5.24, up by 1.22% over the past 24 hours.

Its market capitalization experienced a modest rise, climbing by nearly 1.22% to reach $13.27 billion.

Telegram’s Growing User Base and Financial Challenges

Amidst these legal and financial challenges, Telegram has seen a continued growth in its user base.

By the end of 2023, Telegram had approximately four million premium users, a figure that has grown to over five million in the months since.

This growth in users highlights the platform’s ongoing appeal, even as it navigates through a period of financial and legal uncertainty.

The company’s 2023 financial report also notes that aside from the purchase of $64 million in convertible bonds by Durov, he also spent $300,000 worth of Telegram Premium subscriptions for a giveaway, using Toncoin as payment, further highlighting the centrality of cryptocurrency to the platform.

The Impact of Durov’s Arrest on Telegram’s Valuation

While Durov had touted a valuation of over $30 billion for Telegram, the company’s financial realities suggest a much lower figure.

With an operating loss of $108 million against revenue of $342.5 million, it seems unlikely that investors would continue to support such a high valuation, especially given the company's reliance on a highly volatile market like cryptocurrency.

Telegram has raised over $2.3 billion in convertible bonds from a range of investors, including sovereign wealth funds, hedge funds, and tech-focused investors.

However, the heavy reliance on digital assets, substantial liabilities, and ongoing legal troubles cast a long shadow over Durov’s ambitious valuation claims.

As Telegram continues to navigate these turbulent waters, investors and users alike are left to wonder how the company will manage its financial challenges while addressing the legal battles surrounding its founder.

The arrest of Pavel Durov has undoubtedly triggered a chain reaction that will influence the platform’s trajectory for years to come.