Telegram at $30bln

The Bell

Hello! This week our top story is about the recent success of messaging Telegram, its $30 billion valuation and a hunt for new investment. We also look at the possible fallout of Alexei Navalny’s decision to return to Russia this weekend, and the secrecy and speculation surrounding Russia’s coronavirus vaccine programme

Telegram capitalizes on problems at WhatsApp, Facebook and Twitter

Scandals involving the major social networks at the beginning of 2021 have given an unexpected boost to Russia-born Pavel Durov’s Telegram messenger service. In the last week, Telegram became one of the most widely-downloaded apps in the U.S. and the company announced it surpassed 500 million worldwide users. But Telegram is currently in urgent need of new investment. Sources close to the company told The Bell that Durov recently rejected an offer for up to 10 percent of Telegram. The offer valued the company at $30 billion.

  • Last year wasn’t easy for Telegram. At the start of 2020, the U.S. Securities and Exchange Commission stopped the company from completing an Initial Currency Offering that had raised $1.7 billion since 2018. Durov was obliged to reimburse disappointed investors. Telegram, which had planned to fund its development with this cash, found itself in dire financial straits.
  • Although Telegram has been operating for eight years, there is still no sign of monetization. Durov has subsidized his own company, but the outlays are rising fast – this year, server costs alone will reach $220 million. Late last year, Durov announced that Telegram would start profiting from services for corporate users and in-house advertising. But that will hardly cover the costs, especially when most of Telegram’s users are in developing countries (its biggest single market is Iran).
  • However, 2021 brought Durov new hope. At the beginning of January his biggest competitor, WhatsApp, spooked some users with a new clause in its user contract about transferring data to Facebook (in reality, this data exchange has been operating for years). People also rushed to find more secure messengers after the scandals involving Facebook and Twitter in the wake of the storming of the U.S. Capitol. Telegram briefly became the second most downloaded app in the U.S. on Monday and, the following day, Durov announced 25 million new users had joined in 72 hours (the joiners included Turkish President Recep Erdogan and Brazil leader Jair Bolsonaro). It now has over 500 million users, compared with 1.6 billion on WhatsApp.
  • It’s no coincidence that — as soon as Telegram enjoyed a popularity boom — news emerged the company was in talks to attract investment. Silicon Valley news site The Information reported Wednesday that Telegram was in talks with banks about raising hundreds of millions of dollars of debt and the possibility of converting that debt into shares in the event of an IPO. A source told The Bell on Thursday that a consortium of endowment funds wanted to buy up to 10 percent of Telegram’s shares at a price valuing the whole company at $30 million. However, Durov rejected the offer.

Why the world should care

Most of Telegram’s new users were attracted by the company’s insistence it will not ban anyone unless they discuss illegal activities. Telegram also has a reputation for never cooperating with the authorities, as illustrated by attempts by the Russian government to block the service. However, things may not be that simple in Russia. Noticeably, relations between the Russian government and Telegram warmed last year: efforts to block the service were halted, and Telegram’s vice-president spoke at a conference alongside Prime Minister Mikhail Mishustin.

Navalny heads back to Russia

Leading opposition leader Alexei Navalny announced Wednesday that he will return to Russia from Germany, where he has been recuperating following an attempted nerve agent poisoning. His move raises the stakes and the Kremlin must now make a big decision: put Navalny in prison, let him be, or work out some sort of compromise.

  • Navalny said he will arrive in Russia on Sunday evening on a flight with budget airline Victory (part of national carrier Aeroflot). Preparations for his return are already underway. Navalny’s supporters will greet him at Vnukovo airport and more than 7,000 people have already registered for the relevant Facebook event. Memes on social media compare Navalny’s return to Moscow with Lenin’s arrival at the Finland Station in revolutionary Petrograd in 1917.
  • The authorities are also getting ready. The day after Navalny’s announcement, the prison service said it would be obliged to detain Navalny as soon as he set foot on Russian soil as he violated the terms of a suspended sentence by failing to report to the authorities in December (after being flown to Berlin in a coma). Prosecutors reminded everyone that going to meet the opposition politician at the airport will be regarded as taking part in an unsanctioned demonstration. Journalists were banned from filming the arrival of Navalny’s plane.
  • It is hard to understate Navalny’s courage. Aside from the risks of another assassination attempt, there are a number of ways he could end up in prison. The suspended sentence he is serving was handed down as a result of the so-called Yves Rocher case, which saw Navalny and his brother, Oleg, accused of providing services to the cosmetics company at inflated cost. As a result, Oleg spent 3.5 years in prison while Alexei got a suspended sentence. The European Court of Human Rights later ruled that neither man received a fair trial. Last month, there was an unexpected effort to change Navalny’s suspended sentence to a prison term and the opposition politician is now actively being sought by law enforcement, according to his lawyer.
  • At the same time, the Investigative Committee has launched a large-scale fraud case against Navalny: he is accused of stealing money from his anti-corruption fund. If found guilty, he could spend up to 10 years in jail.
  • Finally, Navalny is accused of spreading false information. This relates to his criticism of a video in which a series of people, including a military veteran, spoke in support of last year’s constitutional reform. Navalny called the participants a “team of corrupt lackeys” and “traitors”. If found guilty, Navalny could be fined, or given community service.
  • Political analysts interviewed by the BBC doubt Navalny will be arrested at the airport, but they do expect some sort of official response. Most likely, Navalny will be placed under house arrest until a convenient moment to move him to prison.

Why the world should care

Risking his freedom to return to Russia is a bold gambit that proves Navalny is far from the ‘unknown blogger’ (how Russian officials usually refer to him). The official response – and society’s reaction – will be a clear signal about the nature of Russian politics in coming years.

COVID-19 vaccination rollout shrouded in secrecy

Although Russia created the world’s first authorized coronavirus vaccine, as anticipated, it has not reached ordinary Russians with any speed. At the end of last year, we reported on how vaccination centers were standing empty. Now, some official incentives mean queues are starting to appear. But the statistics for the number of administered vaccinations provoke deep skepticism, and the vaccine remains unavailable for most people outside Moscow.

  • There is almost no information about the number of Sputnik V vaccines that have been administered in Russia. The only official figure was given Jan. 2 when Health Minister Mikhail Murashko said 800,000 people – 0.69 percent of the population – had received injections. That’s about half the rate of vaccination in the U.S., a third of the U.K., and double Germany.
  • The Russian Direct Investment Fund, which manufactures Sputnik V, announced last weekend that 1.5 million people were vaccinated — although it’s unclear if this figure is for Russia or worldwide. Independent media outlet Meduza cited sources close to the health ministry and the manufacturer who are sure this number is inflated. Nobody knows the real numbers – that data is held exclusively by the Health Ministry and is apparently top secret. It’s very hard to believe the number of administered vaccines doubled in a week, especially when that week fell during the Russian New Year holiday when people tend to do very little.
  • Unsurprisingly, the capital has the biggest vaccine uptake. Moscow Mayor Sergei Sobyanin announced Thursday that 140,000 people (just over 1 percent of the city’s population) had received an injection. Of those, 40 percent are aged 65 or older. A high take-up rate among the older generation is likely due to City Hall’s tactics. When the second wave struck in the fall, City Hall blocked travel cards for pensioners in a bid to get them to stay at home, but at the end of last year Sobyanin pledged to unblock the cards of those who have vaccines. According to doctors, this is the main reason that pensioners have started to come forward for an injection.
  • Outside Moscow, there are serious shortages. Experts at the Peterburgskaya Politika thinktank said that only five regions can offer a genuine mass vaccination program. And the Financial Times reported Thursday that doctors have yet to see the vaccine in several regions. According to media outlet Fontanka, the availability issues are likely connected with the challenges of storage: in their haste to produce a working vaccine, developers did not check how changing conditions might affect the drug, and it turns out that, when temperatures rise above -18C, the vaccine degrades in minutes. Russia does not have the infrastructure to distribute the vaccine under these conditions.
  • There is no alternative. Pinning their hopes on a home-grown vaccine, the authorities did not even try to import the Pfizer or Moderna vaccines and in the near future these will not be available, even in private clinics. It’s likely China’s CanSino will be the first foreign vaccine to be made available in Russia. CanSino is set to be registered soon by a pharmaceutical company operated by Russia’s richest man, Vladimir Potanin.

Why the world should care

Russia’s mass vaccination problem will move slower than most Western countries, but quicker than the rest of the world. That means the economy should recover faster, which is something investors should consider as they put money into emerging markets in the coming months.

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