Discord is a popular communication platform where users can talk and hang out in many different ways. The free service offers text chats, voice calls, video conferences, and file transfers in private conversations and public group chats.
It's a vibrant community with more than 150 million active users spread across 19 million servers -- the name Discord uses for its friend groups. Discord is particularly well-known in the video gaming community but also supports official study groups for college students and other information-sharing tasks. It's like a younger and cooler cousin to Salesforce's (NASDAQ:CRM) work-oriented chat service, Slack.
With millions of users, a global community of enthusiastic users, and budding monetization ambitions, it's no surprise that investors are starting to wonder what Discord is all about. So here's what you should know about investing in Discord in 2023.
Is Discord publicly traded?
Is Discord publicly traded?
Discord is not publicly traded yet, so you can't buy Discord stock on the stock market. A publicly traded company has registered its shares for trading on a public stock exchange such as the Nasdaq or the New York Stock Exchange, and that hasn't happened yet for Discord.
It is a proper company with a management team and a board of directors. Discord shares exist, but you can't buy them through a stock brokerage yet. Instead, most of the shares are held by the company's founders, and a minority of the stubs have been picked up by venture capital investors.
The company has raised about $1 billion from private equity firms and gaming industry companies, including well-known names such as Greylock Partners, Fidelity Management, Accel Partners, and Sony (NASDAQ:SONY) Interactive Entertainment. But private investors like you and me are not on the list of Discord owners yet.
When will it IPO?
When will Discord IPO?
The company discussed a merger with software giant Microsoft (NASDAQ:MST) in the spring of 2021, but Discord walked away from the talks without signing a deal. Microsoft reportedly offered $12 billion for the communications startup. The 11th and latest funding round suggested a market value of roughly $15 billion later that year.
This company has been exploring various ways to go public over the years.
- In 2022, Discord started talking to banks about an alternative entry into the stock market, known as a direct listing. In this model, the company doesn't raise any money from investors; existing shareholders simply start selling their stock on the open market.
- One of its largest and most recent investors is Dragoneer, a well-known specialist in special purpose acquisition companies (SPACs), or shell companies that file for an initial public offering (IPO) and then use the resulting funds to buy a private company.
- And, of course, Discord could take the traditional IPO route. In that case, it would pocket some money when investors buy the stock on the open market. Investment banks smooth out the flow of shares and typically hang on to a portion of the stock for themselves.
Whichever method Discord decides to use, the company seems likely to enter the public stock market eventually. That's usually the exit strategy for venture capital investors, and Discord has dozens of those. Also, the company's leadership seems tailor-made for a public offering of some sort. For example, CFO Tomasz Marcinkowski previously led Pinterest (NASDAQ:PINS) to a $13 billion IPO in 2019.
So, the stars are aligning for a Discord IPO. There just isn't any official word on the timing or pricing of that offering yet.
IPO
How to invest
How to buy Discord stock
There are three principal ways to invest in Discord. One is a matter of time and patience; the other two are available now but aren't exactly direct bets on the communication platform.
1. Wait for the Discord stock
The simplest way to make a direct investment in Discord is to wait until its shares are available through your favorite stock brokerage. If you're a really deep-pocketed investor, the company might want to talk to you about a 12th round of venture capital funds -- but that's not a realistic option for most of us.
So until Discord stock joins the public market, you can tap into its long-term opportunity through indirect investments instead.
2. Other Companies' Stocks
Some of Discord's investors are publicly traded companies in their own right. Sony is the most obvious example, followed by Chinese online entertainment giant Tencent (TCEHY 2.19%). It should be noted that Discord's financial impact on these giant business conglomerates is quite small. If Discord doubles in value, that giant leap might not move the fair market value of Sony or Tencent at all. The real-world impact amounts to a rounding error for companies with $100 billion market caps (or more) with a very small minority investment in Discord.
3. ETFs and Mutual Funds
The aptly named Private Shares Fund (NASDAQMUTFUND:PRIVX) invests in "late-stage, venture-backed private companies" and lists Discord as one of its 10 largest holdings. This may be the closest thing to a direct Discord investment until a proper IPO, direct listing, or SPAC deal comes along.
The Private Shares Fund is a mutual fund, not an ETF. To the best of my knowledge, there are no ETFs with direct exposure to Discord in 2023.
Is Discord profitable?
As a free-to-use social media service, Discord is better known for its rampant growth and deep user engagement than for its moneymaking prospects. The company doesn't even sell ad space in its server communities and discussion threads, which is how social media giants such as Meta's (META 0.43%) Facebook and X (formerly known as Twitter) make their money.
Instead, Discord makes money by selling upgrades for server communities and individual user accounts. There are two levels of premium Discord subscriptions: a Basic plan for $3 per month and the Nitro package for a monthly fee of $10, with benefits that include larger file uploads, more emoji choices in the chat, custom profiles, and access to special activities.
Social Media
Other revenue streams have appeared more recently. You can play simple party games directly in the Nitro version of the Discord app. The company keeps a 10% fee when servers charge a monthly subscription fee. Server admins can also sell custom emojis, access to exclusive text and voice discussions, and early access to new content. In all cases, Discord takes a 10% fee and passes the rest on to the server's owner and content creators.
It's enough to keep the service running, but it's unclear whether Discord can turn a profit from this user-friendly business model. Any attempt to boost the money flow with larger fees or an advertising program risks pushing away users who want the experience to stay inexpensive and ad-free. Avoiding that delicate balancing act may be a leading reason why the company hasn't gone public yet.
Should you invest?
Should I invest in Discord?
Pre-IPO strategies such as the Private Shares Fund or Tencent may be reasonable investments on their own merits. Their Discord exposure should not be the main reason to buy them, however. The financial impact of this social media platform is minuscule in every scenario.
As for picking up Discord shares as soon as the stock goes public, it's too early to tell whether that's a good idea. IPO investments are often risky due to a lack of proven business prospects and uncertain support for the opening day's stock price.
You should look for fresher advice if and when Discord actually announces some sort of IPO. The announcement will be accompanied by a detailed S-1 filing detailing the company's actual business results over the last couple of years. That's a better starting point for an informed investment decision.
Related investing topics
The bottom line on Discord
Successful investing always requires a patient attitude, and the Discord opportunity is no different. Its massive user base is comparable to industry titans such as Netflix (NFLX -0.63%) or Verizon (VZ 1.17%), but the business value of each Discord user is probably much lower than those subscription-based business titans'.
Discord is an exciting service with a plethora of deeply committed fans. The path to monetizing that experience is not so clear-cut, though. It's probably best to wait for an IPO and then observe the company for a quarter or two before taking the plunge. There is no substitute for real-world results.
Investing in Discord FAQs
Is Discord going to go public?
The company has not committed to going public yet, but many signs point to a future IPO. Discord is backed by venture capital investors, who often earn a profit on their investments by selling shares on the open market. The company has also been known to discuss various market entry strategies, such as direct listings and wholesale buyouts, in recent years. A Discord IPO is not guaranteed, but many investors expect one fairly soon.
What company owns Discord stock?
Only a couple of publicly traded companies have any direct financial interest in Discord.
Tencent contributed an unknown amount to Discord's Series C, E, and F funding rounds in 2016 and 2018. These rounds add up to $220 million but also involved several private equity funds. Tencent's total investment in Discord is an unknown fraction of that financial commitment.
The video gaming arm of the Sony empire signed a partnership with the company, aiming to bring an official version of the Discord platform onto the PlayStation Network social media service. The deal included Sony taking part of Discord's Series H round of investments, which was a $3.3 million affair that also included two private equity firms. Again, Sony's exposure to Discord is quite small.
In all, about 30 funds, private equity firms, and companies can claim ownership of Discord. However, most of them are private businesses, and none of their Discord stakes are very large. Most of Discord's stock remains firmly in the hands of co-founders Jason Citron and Stan Vishnevskiy.
