The Financial Times (FT) recently published a report detailing the financial state of Telegram, the messaging app founded by Russian-born billionaire Pavel Durov, and cryptocurrency’s significant role in its revenue stream.

According to the FT report by Robert Smith and Hannah Murphy, which was published on August 30, Telegram’s 2023 financials, which the publication obtained, reveal that the company generated $342.5 million in revenue while incurring a substantial operating loss of $108 million. This financial report, signed by Durov and audited by PwC’s Dubai branch, highlights the increasing importance of cryptocurrency to Telegram’s business model.

A noteworthy aspect of Telegram’s revenue is its reliance on digital assets, particularly Toncoins, which were originally developed by Telegram but are now maintained by an independent open-source community. The FT report emphasizes that over 40 per cent of Telegram’s revenue comes from two specific business lines: the “integrated wallet” and the “sale of collectables,” both of which involve transactions in Toncoins. These figures underscore the extent to which cryptocurrency transactions have become intertwined with Telegram’s financial performance.

The FT also sheds light on the complexities involved in accounting for these digital assets. Telegram’s financial statements reveal that the company recorded a modest gain of $500,000 through its profit and loss (PnL) statement but a much larger gain of $86 million through other comprehensive income, all related to the revaluation of digital assets. According to the FT, these gains are the result of revaluations of Telegram’s cryptocurrency holdings, reflecting the volatile nature of the digital asset market.

Moreover, the FT notes that Telegram’s balance sheet is heavily weighted with digital assets, which are valued at nearly $400 million, far surpassing the company’s cash and cash equivalents. This heavy reliance on cryptocurrency presents both opportunities and risks for Telegram, particularly in light of the recent arrest of Durov in France for allegedly failing to control criminal content on the platform. The FT suggests that this arrest has had an immediate impact on the value of Toncoins, as reflected in the sharp decline in their price following the news.

In addition to cryptocurrency-related revenue, the FT report reveals that Durov himself played a significant role in Telegram’s financial activities. Last year, Durov purchased $64 million worth of Telegram’s convertible bonds and also bought $300,000 worth of Telegram Premium subscriptions, using Toncoins as payment. The FT indicates that these transactions highlight the close ties between Durov’s personal finances and the company’s operations.

The FT report also touches on the legal and regulatory challenges facing Telegram, particularly in relation to its commitment to user privacy. Telegram’s core value of protecting user privacy has made it popular among users, but it has also attracted scrutiny from authorities in various countries. The FT highlights a warning in Telegram’s financial statements that the company’s operations could be affected by changes in legal and regulatory frameworks, a concern that seems particularly relevant in light of Durov’s recent arrest.

Finally, the FT raises questions about Telegram’s valuation, which Durov earlier this year claimed to be “$30bn-plus.” The report suggests that this valuation might be optimistic, given the company’s reliance on cryptocurrency and the substantial operating expenses it incurs relative to its revenue. The FT concludes that while Telegram has successfully leveraged cryptocurrency to bolster its revenue, the company faces significant challenges in navigating the complex and rapidly evolving regulatory landscape.

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