Under pressure, Telegram pulls off an elusive milestone: A profit

In recent months, Telegram, the lightly moderated social media app, has held discussions with investors who lent it more than $2 billion. The goal: to reassure them that the company remains a viable bet after its founder, Pavel Durov, was arrested in France in August on charges related to illicit activities on the platform.

In the conversations, Telegram told investors that it was tackling its legal troubles head-on by policing more user-generated content. The company also said it had paid down a "meaningful amount" of its debt, according to an investor in the talks who was not authorized to discuss confidential information.

Telegram has been under increasing scrutiny around the world this year for hosting illicit content from child predators, drug traffickers and other criminals. The company also faces pressure another way: to prove it can make money.

For years, skeptics have questioned if a platform known for hosting toxic material could turn a profit. Unlike social media companies such as Meta, Telegram took an unusual business path: It did not raise money from venture capitalists, sell advertising based on user data or hire aggressively to accelerate growth. Instead, it relied on Durov's fame and fortune to sustain its business, took on debt and barreled into the cryptocurrency market.

Now, Telegram is out to show it has found its financial footing so it can move past its legal and regulatory woes, stay independent and eventually hold an initial public offering. It has expanded its content moderation efforts, with more than 750 contractors who police content. It has introduced advertising, subscriptions and video services. And it has used cryptocurrency to pay down its debt and shore up its finances.

The result: Telegram is set to be profitable this year for the first time, according to a person with knowledge of the finances who declined to be identified discussing internal figures. Revenue is on track to surpass $1 billion, up from nearly $350 million last year, the person said. Telegram also has about $500 million in cash reserves, not including crypto assets.

Telegram has nearly 1 billion users, including 12 million subscribers who pay about $5 a month for added features. More than half of its revenue this year came from advertising, the person said, after attracting larger brands such as Samsung. It also plans to expand ads within public channels that attract more than 1 trillion views a month. Telegram was valued at more than $30 billion earlier this year.

Telegram has been helped by cryptocurrencies in particular, two people said. The company sold hundreds of millions of dollars of digital assets this year, including toncoin, a virtual currency that was partly built inside Telegram and is now run by outside developers. It has floated new crypto-focused ideas such as allowing users to mine cryptocurrencies and exchange them through third-party applications on Telegram.

"Telegram needs a sustainable business model to continue operating as a self-sufficient company," said Raúl Castañón, a senior analyst for S&P Global Market Intelligence, who has tracked Telegram for the past decade. "They have already done what I consider the most challenging part, which is getting a really sizable user base."

In a statement, the company said its "priority is the long-term health and sustainability of Telegram's ecosystem by expanding our monetization efforts, investing in content moderation tools and -- most importantly -- remaining a neutral platform focused on protecting the privacy of our users."

The Financial Times earlier reported Telegram's digital asset sales and valuation.

Yet, as Durov tries to transform Telegram into a mainstream business, he faces a balancing act: how to dial back the platform's anything-goes approach so it appeals to advertisers and investors, while maintaining the allegiances of users who seek a digital free-speech space.

Durov's legal fate also hangs over Telegram's future. The 40-year-old, who has denied the charges in France, must remain there while under investigation and faces a possible jail sentence if convicted. He is Telegram's sole owner and its driving force. The company does not have an independent board and has not publicly outlined a succession plan. If it is squeezed for cash or cannot develop a sustainable business model, that could force Durov to take on more debt or sell part of the company for the first time.

Telegram's business dilemmas trace back more than a decade.

In 2014, Durov was pushed out of his previous startup, the Russian social network VKontakte, when he declined to hand over user data to Russian authorities. After selling his stake in VKontakte, he used the estimated $300 million in proceeds to bankroll Telegram, pledging to maintain sole ownership and not take money from outside investors.

The arrangement gave Telegram -- now in Dubai, United Arab Emirates -- independence. Under no pressure to generate revenue, Durov focused on privacy over advertising and other moneymaking products.

By 2017, Telegram was approaching 200 million users and its costs were soaring for back-end servers, product development and other items. Durov began exploring new financing options that would also allow him to maintain sole ownership of the company.

"We wanted to be independent," he said in an April interview with Tucker Carlson. "We knew that our mission and our goals were not necessarily consistent with the goals of the funds that could be investing into us."

His solution was crypto. In 2018, Telegram raised more than $1.7 billion by pledging to create its own digital currency that would be given to about 170 wealthy investors. The funds were to be used partly to develop blockchain technology for making digital transactions.

Investors included Silicon Valley venture capital firms Lightspeed Venture Partners and Sequoia Capital. Others were Russian oligarch Roman Abramovich and Jan Marsalek, an executive at payment-processing firm Wirecard who was later accused of being a Russian spy and is wanted for fraud and other crimes, according to documents seen by The New York Times.

The crypto deal was a success -- but in 2020, Telegram was forced to abandon it after the Securities and Exchange Commission said it violated federal securities laws and posed a risk to retail investors.

Telegram agreed to return the money, but had already spent nearly one-third of the cash, according to an SEC announcement and a person familiar with the investigation. Telegram offered its backers a partial refund or a promise to repay them with a 10% profit at a later date.

Several investors sued. Adding to their anger, Telegram was paying Durov an annual salary of roughly $12 million from 2018 to 2020, according to records seen by the Times. A private settlement was eventually reached. (Telegram said Durov's salary is now 1 UAE dirham a year, worth about 25 cents.)

Around then, Telegram announced its first major efforts to generate revenue, including through advertising. Large brands were reluctant to advertise on a platform known for hosting terrorist propaganda and far-right extremists, although smaller advertisers joined.

Maria Vasileva, 30, who lives in Thailand, said she used Telegram ads to find new subscribers for channels she operates on the platform teaching data analytics. Ads are more successful in countries where Telegram has a large audience, such as Russia and Ukraine, she said, but "in other countries, advertisers still need to be convinced about Telegram's benefits."

In 2021, Durov decided to take on debt. He promoted a bond offering by promising investors a 10% discount on an eventual public offering of the company.

In several rounds of bond offerings from 2021 to this year, Telegram raised about $2.4 billion from investors including sovereign wealth funds in the UAE. BlackRock, the world's largest asset management firm, also owns some Telegram bonds, according to Bloomberg data.

The bondholder who recently spoke with the company said they were attracted by Telegram's large user base and growth. Prices for Telegram's bonds fell after Durov's arrest but have since mostly recovered, a sign the market thinks the company can pay back the money.

In March, Durov talked up a potential Telegram stock listing to The Financial Times, with the expectation it would happen by early 2026. But plans changed last summer when he was arrested in Paris.

Telegram declined to comment on IPO plans and said it "remains fully owned by Mr. Durov, who has neither the desire nor the need to sell any equity."

Some investors remain wary. Two U.S. hedge funds said they had reviewed the company's finances but opted against backing it, concerned it would not stabilize its business amid the regulatory and legal scrutiny.

Telegram said it would pay back investors on time. Its crypto holdings have recently been bolstered by the incoming Trump administration's embrace of digital currencies.

Durov, who has stayed mostly quiet about the accusations against him, has been working out of a Paris hotel since August. He often promotes Telegram's new business features to his more than 13 million followers on the platform, along with occasional life advice.

"Split a big task into smaller parts, organize them in the right sequence -- and you'll get through," he said in October.