"Telegram's Path to Profitability Appears Uncertain"

Telegram's prospects for achieving profitability are uncertain. The company's financial future is clouded by various challenges and uncertainties that could impact its ability to become profitable. As Telegram continues to navigate its business model and revenue strategies, its path to financial success remains unclear, raising questions about the sustainability of its current approach.

Pavel Durov is facing significant legal challenges, including an inability to leave France due to accusations from domestic prosecutors. They allege that he allowed his messaging app, Telegram, to be used for money laundering and hosting child sexual abuse material. While this legal trouble is pressing, Durov also faces a tough challenge in making Telegram profitable.

Before these legal issues arose, Durov's primary concern was preparing Telegram for either an initial public offering or a sale to a major tech company. In 2023, Telegram generated $342 million in revenue, according to the Financial Times. With an estimated 850 million monthly active users, this translates to just 40 cents per user. Durov had previously indicated that his costs per user were under 70 cents, suggesting a loss of 30 cents per user.

One potential solution is to pivot Telegram to a Facebook-like business model, where revenue primarily comes from advertising. Like Facebook's Groups, Telegram's public channels can accommodate unlimited users. In theory, Durov could monetize these channels by allowing targeted ads. However, this approach would be costly due to increased moderation requirements. Governments worldwide are pressuring social media platforms to enhance content moderation, a task that has cost Meta Platforms $20 billion since 2016, or $0.83 per active user. For Telegram, this additional expense could triple the current per-user loss to $1.13, amounting to a $1 billion loss overall.

Alternatively, Telegram could model itself more like Meta’s WhatsApp, focusing solely on messaging. WhatsApp, despite its integration into Facebook and Instagram's advertising ecosystem, has struggled to generate significant revenue from messaging alone, recently reaching $1 billion. Shifting Telegram to a pure messaging service with fewer users could reduce moderation costs but poses its own monetization challenges.

Compounding these issues, Durov is under formal investigation in France for suspected involvement in running an online platform used for illicit activities, including drug trafficking and fraud. The investigation, announced on August 28, 2024, follows Durov's arrest on August 24. Durov, who holds both French and UAE citizenships, is also accused of facilitating money laundering and providing encryption for criminal activities. His lawyer, David-Olivier Kaminski, argues that it is unreasonable to hold Durov or Telegram accountable for abuse occurring on the platform, asserting that Telegram complies with European laws.

Telegram has also raised approximately $2.4 billion in debt financing, set to mature in 2026. As of September 2, the company’s bonds were trading at around 87 cents on the dollar, with yields exceeding 16%. This is a decline from over 96 cents on August 23, the day before Durov's arrest in Paris.

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Source: Reuters‍