Microsoft, Google: Answer This Telegram

| About: Alphabet Inc. (GOOG)

Summary

Telegram is experiencing the kind of fast growth that characterizes WhatsApp.

Telegram added 38 million new users between May 2015 and February 2016.

Telegram has become popular because of its speed, versatility and security.

Telegram Messenger offers a much a higher level of security than some of its competitors.

Alphabet and Microsoft would be well advised to make bids for Telegram now.

There is a social messaging solution that Microsoft (NASDAQ: MSFT) and/or Alphabet (NASDAQ: GOOG GOOGL) should consider buying, and it's not Twitter (NASDAQ: TWTR). The tech giants should consider buying the encrypted messaging solution Telegram instead.

Telegram, or Telegram Messenger, is a multi-platform messaging solution similar to Facebook's (NASDAQ: FB) WhatsApp. That means it can work with a wide variety of phone operating systems, including Android, Apple iOS, Windows Phone and even the little-known Ubuntu Touch. The messenger also operates with the world's three most popular desktop operating systems: Windows, Apple's OS X, and Linux.

Like WhatsApp, Telegram lets users exchange a wide variety of media, including photos, videos, audio recordings, phone calls, stickers and many kinds of files. More importantly, Telegram offers end-to-end encryption, making it a secure communications solution that can work with any type of phone.

If that was not enough, there's a new app called StartChat that lets users send Bitcoin payments via Telegram. That offers the potential of using Telegram as the basis of a platform for financial transactions such as money transfers.

It also offers a potential to get into the fast-growing remittance business — the transfer of money between developed nations like the USA and developing countries like Nigeria. The World Bank estimated that $440 billion in remittances were sent last year, that number is expected to rise to $459 billion in 2016 and $479 billion in 2017.

Telegram is Growing Fast Just like WhatsApp

More intriguingly, Telegram is experiencing the kind of fast growth that characterizes WhatsApp. Statista estimated that WhatsApp had around one billion users in April 2016 while Twitter had just 320 million.

Telegram only has around 100 million users, but its growth has been phenomenal. Telegram added 38 million new users between May 2015 and February 2016, its CEO and founder Pavel Durov told the Mobile World Congress on February 23.

The service was adding 350,000 new users a day, Durov claimed. He also boasted that Telegram users were sending 15 billion messages a day. Venturebeat estimated that Telegram's growth rate in February was 60%.

Much of Telegram's appeal is its enhanced privacy features. In December when a court order blocked access to WhatsApp in Brazil, Telegram tweeted that it was receiving one million new users a day in that country.

Why is Telegram so Appealing?

Telegram has become popular because of its speed, versatility and security. Since it is a cross-platform solution, a person can use Telegram on all of his or her devices at once.

Another intriguing feature is the ability to create groups of up to 5,000 people and channels for broadcasting to unlimited audiences. That opens up an incredible variety of potential e-commerce and business uses for Telegram. It can be used to send files of any type, including Excel spreadsheets and Microsoft Word documents which cannot be sent through WhatsApp.

Telegram Messenger offers a much a higher level of security than some of its competitors. Users have the option to employ end to end encryption, the ability to create self-destructing messages, hold Secret Chats and lock the app down with password protection.

Mark Zuckerberg and WhatsApp's co-creator Jan Koum are certainly afraid of Telegram. WhatsApp added a very strong end to end encryption feature to its ecosystem on April 5, 2016. Even though Koum did not mention Telegram in his message announcing end to end encryption, it seems he is afraid of the competition.

The encryption and file sharing capability makes Telegram a cloud storage and data management solution as much as it is a messenger. Using it, a businessperson can store all of his or her records without taking up any space on his or her phone or computer. That capability, combined with the high level of security, will make it enticing to enterprises of all shapes and sizes.

Rumor Mill: Google Tried to Buy Telegram

Even if you are not aware of Telegram's value, Alphabet certainly is. Russian media reported that the company, formerly known as Google, made a $1 billion offer for the privately held Telegram in April, according to Fortune.

Durov turned the offer down because he thinks his company is worth $3 to $4 billion. Google CEO Sundar Pichai met with Durov as far back as May 2015, to discuss a deal.

If those reports are true, Telegram is certainly cheaper than Twitter, which had a market cap of $11.42 billion and an enterprise value of $9.368 billion on June 21, 2016. Twitter also has liabilities of $1.999 billion and a long-term debt of $1.476 billion, according to YCharts.com.

Skeptics will say that there is no indication that Telegram makes money. That's true, but the latest earnings report indicates that Twitter is not making money. Twitter reported a net income of -$438.32 million, a diluted earnings per share of -$.6622, a return on equity of -10.42% and a profit margin of -13.41% on March 31, 2016.

WhatsApp lost $138 million in 2013, the year before Facebook bought it, The New York Times Dealbook reported. Zuckerberg bought WhatsApp for the potential audience reach, not the money it was making.

Telegram is a Bargain

Alphabet and Microsoft would be well advised to make bids for Telegram now. If it becomes as successful as WhatsApp has been, the encrypted messenger's value might balloon to $25 billion or even $30 billion real soon. Since both Alphabet and Microsoft need an encrypted messaging solution, spending $5 billion or even $8 billion to get Telegram would be money better spent than a purchase of Twitter.

Buying Telegram would also give those companies more reach into regions of the world. Statista reported that 66% of internet users in Latin America and 63% of internet users in Africa and the Middle East had used WhatsApp during the fourth quarter of 2015.

If Telegram is even one-third as successful as WhatsApp, it would be a bargain for either Microsoft or Alphabet. The humble messaging app might be the solution that enables those tech giants to take their cloud-based services and solutions into many new markets.

Twitter is nothing but an amusing toy for middle-aged Americans to play with. Telegram is a cutting-edge messaging solution with a potential to reach a mass audience worldwide and form the basis of next generation e-commerce and cloud-services platforms. It, not Twitter, should be on Microsoft's and Google's shopping lists.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.