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Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
Pavel Durov’s arrest in France for allegedly failing to regulate prison content material on Telegram, the Russian-born billionaire’s messaging app, has sparked an intense debate in regards to the limits of free speech and the obligations of huge tech corporations to average their platforms.
Financially talking, nevertheless, cryptocurrency issues as a lot to Telegram’s bottom line as messaging.
FT Alphaville received its arms on the privately held firm’s 2023 financials, which present crypto transactions offering an enormous chunk of its income.
Telegram Group, which is included within the British Virgin Islands and has certainly one of its major working subsidiaries within the United Arab Emirates, booked $342.5mn of income final yr on a hefty working lack of $108mn. Right here’s the PnL assertion, signed by Durov and given a clear invoice of well being by PwC’s Dubai department in April:
Eagle-eyed readers might have already noticed the “acquire on revaluation of digital belongings” strains, of which a modest $500,000 was booked via the PnL and a extra substantial $86mn via different complete earnings.
Turning to the breakdown of Telegram’s income, the “built-in pockets” and “sale of collectibles” line gadgets can even possible set off the spidey-sense of any crypto-conscious reader:
Mixed, the 2 line gadgets make up over 40 per cent of Telegram’s revenues.
You may additionally have seen that the so-called “built-in pockets” is a brand new enterprise line for Durov’s firm. Because the accounts additionally clarify:
Through the yr ended 31 December 2023, the Group began producing revenues from enabling entry to the Built-in pockets (Be aware 13). The Built-in pockets is a software program program that permits customers to retailer, ship, obtain and commerce crypto belongings.
Telegram offers additional disclosure on what digital belongings, collectible gross sales and its built-in pockets imply for its enterprise, right here:
Digital belongings
The Group sells completely different collectibles and gives Built-in pockets providers in alternate for non-cash consideration within the type of Toncoins (digital belongings) that are accounted for underneath IAS 38 — Intangible belongings.
These digital belongings are initially recorded at value and are subsequently measured underneath the revaluation mannequin at honest worth much less any accrued impairment losses at every reporting date contemplating the presence of an lively marketplace for the Toncoin. Any honest worth actions above value are recorded via different complete earnings in a separate reserve known as ‘Revaluation surplus’ inside fairness whereas any honest worth actions under value are first offset in opposition to current credit score balances underneath the revaluation surplus with any extra over and above this steadiness being recorded via revenue or loss.
The Group holds these digital belongings for its personal account for funding functions (that’s, capital appreciation) over prolonged durations of time with subsequent gross sales made at administration’s discretion when the market circumstances are beneficial. Beneficial properties and losses on disposals are decided by evaluating the proceeds with the Carrying quantity and are recognised in revenue or loss for the yr when the asset is derecognised. On the time of derecognition, the related quantities recognised within the Revaluation surplus are transferred to Retained earnings.
And right here:
Income from the sale of collectibles. The Group sells completely different collectibles (usernames, digital cellphone numbers) to its customers. The associated income is recognised at a cut-off date when the collectible is assigned to the person. The Group additionally permits the sale of collectibles between customers and receives the charge for facilitating the sale.
Toncoins (digital belongings), a non-cash consideration is accepted as consideration for one of these sale. Toncoins are measured and recognised at honest worth on the time of the Group fulfilling its efficiency obligation: assigning the collectible to the person or facilitating the sale between customers. The Group determines the honest worth of the digital belongings primarily based on quoted costs on the lively exchanges.
Built-in pockets. The Built-in pockets is a software program program that permits customers to retailer, ship, obtain and commerce crypto belongings. Through the yr ended 31 December 2023, the Group recognised income from the mixing of the Built-in pockets on the time of the supply of the applying programming interface to The Open Community Basis enabling Built-in pockets’s integration into Telegram App, and from offering steady entry of Telegram customers to the Built-in pockets from menus contained in the Telegram App on an unique foundation over the time period when the service has been supplied. The Group usually gives providers associated to the Built-in pockets on a prepayment foundation. There isn’t any financing element, as a result of the providers are rendered inside a interval lower than 12 months from fee.
Toncoins (digital belongings), a non-cash consideration is accepted as consideration for one of these sale. Toncoins are measured and recognised at honest worth on the time when the Group receives the consideration.
The TON blockchain that underpins Toncoins was initially developed in-house at Telegram, drawing in supporters that included outstanding rich Russians. It’s now developed independently of the corporate by an open-source neighborhood, nevertheless, after the undertaking bumped into regulatory troubles in the US.
Turning to the steadiness sheet, digital belongings make up an enormous chunk of Telegram’s belongings. Valued at practically $400mn, tokens are far bigger than its money and money equivalents:
Telegram additional breaks down final yr’s enhance in its crypto holdings right here:
Elsewhere within the related-party transactions part of the accounts (certainly one of FTAV’s favorite sections in any set of economic paperwork), we be taught that other than buying $64mn of Telegram’s convertible bonds final yr, Durov additionally bought $300,000 value of Telegram Premium subscriptions for a giveaway, paying the corporate in Toncoin:
For sure, Toncoin merchants haven’t shrugged off the information of Durov’s arrest. Worth chart courtesy of CoinMarketCap:
Usefully for Telegram, the events-after-the-reporting-date part of the accounts exhibits that it bought an enormous chunk of its Toncoin forward of the worth crash:
Whereas Telegram is 100 per cent owned by Durov, the corporate has raised north of $2.3bn of convertible bonds from blue-chip buyers similar to sovereign wealth funds, hedge funds, and tech-focused buyers.
Even leaving apart the heavy reliance on crypto and the substantial liabilities, one may query whether or not a enterprise that needed to burn via over $450mn of working bills to make $342.5mn of income is well worth the “$30bn-plus” valuation Durov touted to the FT earlier this yr.
In terms of its founder’s arrest, nevertheless, buyers in Telegram’s convertible bond that correctly learn the accounts can’t say they weren’t warned:
Since its founding, the Group has been firmly dedicated to guaranteeing the privateness of Telegram’s customers. The Group’s core worth of person privateness has not prevented Telegram from actively partaking in efforts and technical options to fight abusive, malicious or violence-inducing content material on-line. The core values of the Group have led to Telegram’s recognition with its customers. Nevertheless, the Group’s operations could be affected by authorized and regulatory frameworks in numerous nations that are topic to frequent adjustments and ranging interpretations.
