Signs point to community chat platform Discord going public soon, which could present investors with a major opportunity. While no official plans have been made yet, here's why an investment in Discord deserves a look.
A text, audio and video communication platform originally designed for gamers, Discord was launched in 2015 by avid gaming enthusiasts Jason Citron and Stan Vishnevskiy. Frustrated with slow and complex chat apps of the day, the pair built Discord to provide a simpler and streamlined way to communicate while gaming.
Discord soon attracted gamers in droves, who converged on the platform thanks to its low-latency chats and appealing user interface. An immediate success, Discord quickly became the standard chat tool for gamers.
Image source: Getty Images.
Discord's not just for gamers anymore
Before long, gamers weren't the only users of Discord. Crypto traders, anime fans, and other interest groups soon joined the ranks of gamers, and Discord reconsidered its position in the market.
The COVID-19 lockdown in early 2020 skyrocketed Discord's user base as the general public took to the app to stay in touch with family and friends. In a major marketing shift, Discord changed their slogan from "Chat for gamers" to "Your place to talk" and opened the floodgates to a much wider audience. In late 2020, Discord reported that 70% of its user base utilized the platform for non-gaming purposes.
By 2021, Discord's registered users reached 350 million. Previously the app of choice for gaming and crypto communities, Discord is now the industry standard for nerdy discussion of all types. And its loyal, cult-like user base continues to grow.
Discord has shown substantial growth
Discord's user base has grown steadily, with its monthly active users jumping from 9 million to 140 million between 2017 and 2021. But that acceleration appears to have slowed, with only 150 million current monthly active users reported in 2022.
As for revenue, Discord doesn't disclose this information as a privately held company. Still, estimates show it brought in revenues of $130 million in 2020, a year-over-year increase of 188% from 2019's estimate of $45 million.
The company has also grown by way of acquisitions, picking up three new companies in the past four years. The Blitz App, where users can earn money playing games, was acquired back in 2018. In 2021, Discord bought augmented reality pioneer Ubiquity6 as well as Sentropy Technologies, which detects and deters harmful content.
Discord doesn't use ads, no doubt a contributing factor to its popularity, but rather makes money through its Nitro subscription plans. Discord is free for the basic version with standard functionality. Nitro and Nitro Classic, a cheaper option with fewer benefits, enhance Discord's experience by unlocking additional features and tools. Many of these features are geared for serious gamers, a niche but ever-expanding and global market. Nitro is offered at $9.99 a month or $99.99 a year, and Nitro Classic runs $4.99 a month or $49.99 a year.
Discord has already carved itself a niche in the market with its universal app that works on all mobile and desktop systems. Now practically a household name, a Discord IPO could draw a lot of attention.
Signs Discord is looking to go public
In September 2021, Discord raised $500 million in a funding round that valued the company at a whopping $15 billion. This doubled its previous valuation of $7.3 billion in December. 2020.
The company hasn't officially confirmed its intention to go public, and whether it will be via an IPO or direct listing. In March, Discord is reported to have held interviews with investment bankers to discuss the possibility of a direct listing.
But they might also decide to go the route of an initial public offering if that better suits their needs. IPOs raise capital by issuing new shares, but come with underwriting fees and often volatile price movement when they first hit the market. In a direct listing, only existing shares are sold, but it's a much quicker and cheaper process for the company.
In early 2021, Microsoft is said to have offered $12 billion to buy out Discord, but the offer was turned down. Amazon, Twitter and Epic Games have also reportedly offered to buy out Discord in the past.
Instead of entertaining offers, Discord hired former Pinterest executive Tomasz Marcinkowski as its first-ever CFO. Since Marcinkowski led Pinterest's successful IPO in 2019, this move was seen as a strategic step toward IPOing.
To serve as COO, Discord snagged Liz Hamren away from Microsoft last December. Other recent company additions include former Netflix executive Leslie Kilgore and former Block CFO Amrita Ahuja to its board of directors. Recruiting this top-level talent from public companies has some analysts concluding that Discord plans to go public.
Reasons to proceed with caution
IPOs are sometimes easy to get excited about, since fans and enthusiasts often can't wait to get a piece of their favorite companies. However, let's not forget how last year's Coinbase IPO has fared. Sometimes a company's initial price at offering is far more than what the market considers a fair value. Video game investors should keep this in mind when considering buying into a Discord IPO.
No one knows for sure what will happen, but if the company can keep its momentum up, a Discord IPO or direct listing could be worth preparing for. Once an announcement is made, things could move really quickly. Analysts forecast an IPO to happen as early as the second half of 2022.
