Is Discord Inc. IPO a Good Buy?

Borne out of a labor of love and necessity, Discord Inc. sought to answer a vexing problem of the online video-gaming community: deliver a real-time communication platform that could keep up with the rising technical demands of modern digital entertainment.

Eventually, the gaming-centric chat app evolved to serve professional needs, thus presenting a potential opportunity for investors. However, prospective buyers must consider all angles before opening their wallet.

What Does Discord Do?

A popular communications platform, Discord belongs to a growing subsegment of chat apps, similar to Skype, TeamSpeak and Slack. Founded by Jason Citron and Stan Vishnevskiy, the two wanted to share their fondness for video games with broader online communities. However, when their business was still in the conception phase, communication mediums lagged in speed and reliability.

That’s where Discord aims to shift the paradigm permanently. Through an efficient and integrated platform, Discord allows individual users to find other gamers, coordinate gameplay and talk in real time while participating in various online competitions. As well, the system supports video calls, voice chat and text, enabling myriad communication methods.

Though digital entertainment represents the company’s core heritage, most Discord users today use the platform for purposes other than gaming. According to Digitaltrends, the platform commands 250 million users, with 14 million people logging in daily. A prime example of Discord’s functionality is the nationally syndicated The David Pakman Show, where the chat app enables fans to call in and interact with the namesake host.

When is the Discord IPO Date?

Since at least late 2021, Discord has attracted attention from investors about a possible initial public offering (IPO), or the first time a private enterprise distributes its shares to retail investors. Prior to a new listing, a non-public entity will typically raise money through private-equity rounds, which are typically reserved for institutional or accredited investors.

However, thanks to favorable legislation — most notably the JOBS Act introduced in 2012 that eased restrictions originally implemented by the U.S. Securities and Exchange Commission (SEC) regarding investing in small-to-medium-sized businesses — public buyers now have more options regarding participating in ground-floor opportunities.

As well, some of the best brokers in the financial services industry allow retail investors to participate in pre-IPO rounds or the ability to purchase equity shares of private companies at their initial offering price. Should Discord decide to finetune a date on the IPO calendar for its market debut, interest in the offering will likely be massive considering the platform’s popularity.

Unfortunately, investors will have to wait a little while longer. Although rumors suggested that Discord could debut in early 2022, so far management has yet to file a Form S-1 prospectus with the SEC. Thus, any information at the original time of writing regarding Discord’s IPO date, deal size or even what exchange its shares may list at is pure speculation.

Nevertheless, the pace at which the company has been raising funds strongly hints at a public market debut. For one thing, Discord, like any other private enterprise receiving capital from private-equity firms, must strive to deliver a robust return on investment (ROI) for its early backers; otherwise, the chat app service will lose credibility. One of the quickest ways to reward such stakeholders is through an IPO.

In addition, having dominated its initial target market, Discord will be looking to expand its footprint in the professional communication services sector. This audacious route entails going head-to-head against blue-chip giants like Microsoft Corp. (NASDAQ: MSFT) or salesforce.com inc. (NYSE: CRM), the cloud-based software firm that owns the Slack platform. In this case, an IPO would likely provide an influx of capital to fuel Discord’s ambition.

However, a new listing does not represent an automatically successful outcome for Discord. Obviously, management could decide to delay its IPO — or even outright abandon the concept. But even if it moves ahead, multiple challenges await the company.

Mainly, the Federal Reserve’s implied pivot to a hawkish monetary policy could potentially sabotage Discord’s entrance to the public arena. With consumer prices skyrocketing as of late, the Fed has every incentive to attack the money supply that expanded substantially during the trailing two-year period. However, doing so will disincentivize investment in growth-oriented software technology firms like Discord.

In other words, it’s well within possibility that outside factors that have nothing to do with the underlying business could disrupt Discord’s debut. Therefore, consideration of this potential opportunity must be juxtaposed with comprehensive due diligence.

What Analysts are Saying About Discord IPO

Because Discord has yet to reveal its intentions about an IPO, market analysts have refrained from providing many opinions about it. The company could always decide to go another way, thus eliminating efforts into researching the opportunity in one fell swoop.

Still, much of the discussion will revolve around the power of the video-game industry should Discord decide to go public. Per Mordor Intelligence, the gaming market reached a valuation of $173.7 billion in 2021, with industry experts projecting that it will hit $314.4 billion by 2027, reflecting a compound annual growth rate (CAGR) of 9.64% between 2022 and 2027.

Indeed, when news broke last year that Microsoft was seeking to buy out the communications platform, The NPD Group analyst Mat Piscatella stated that “We’ve jumped ahead a couple years in terms of consumer behaviors around gaming.” Further, Piscatella added, “We’re not likely to return to pre-pandemic baselines around engagement or spending.”

Put another way, the new normal phenomenon regarding increased interest in video games and other social connectivity platforms is unlikely to wane appreciably. Such a scenario will probably incentivize demand for Discord shares.

Armed with such encouraging data and outlook, could the Discord IPO be a no-brainer? Bluntly, no, and that’s because every investment necessarily involves some magnitude of risk. Regarding gaming-focused chat apps, it’s not entirely clear if digital entertainment engagement statistics can remain elevated.

First, after two years of lockdowns and COVID-19 mitigation measures, many consumers are suffering from cabin fever. Therefore, more time spent in digital environments as opposed to in-person interactions seems an unlikely trajectory given the context of the pandemic.

Second, rising consumer prices — if left unchecked — could indirectly impact Discord, with users gradually avoiding discretionary purchases in favor of critical products and services.

Third and finally, expert projections don’t always pan out. Case in point is the electric vehicle (EV). According to author Robert Bryce, while it may be the popular mantra that EVs are the future of transportation, publications such as The New York Times offered similar sentiments — back in 1911.

Discord Financial History

Without Discord’s Form S-1, it’s impossible to conduct a thorough analysis regarding its financials. However, the lack of certain disclosures does not necessarily mean that interested parties are completely blind to the opportunity.

For starters, in 2020, Discord reported revenue of $130 million, representing a massive growth rate of 189% from 2019’s tally of $45 million. Also in 2020, the chat app enjoyed 800,000 downloads per day, demonstrating incredible momentum during the worst of the pandemic.

As well, investors will note that Microsoft offered to buy Discord for at least $10 billion. However, as The Wall Street Journal reported in April of last year, those talks failed. Instead, people familiar with the matter disclosed that Discord cut talks, instead resuming focus on a road to a potential IPO. In all likelihood, the new listing — if it arrives — will not come cheap.

In large part, management knows that it can dial up the premium for company shares because of immense interest in the private-equity realm. According to Crunchbase.com, across 14 funding arounds, Discord raised nearly $983 million. In its latest round on Sept. 16, 2021, the firm raised $500 million, with Dragoneer Investment Group acting as the lead investor.

Although the prospect of participating in a popular IPO is enticing, investors should recognize that heavily hyped offerings sometimes don’t deliver the goods in the intermediate to long term. With Discord, one of the biggest challenges could be competition, with accelerating technologies inherently lowering the broader software industry’s barrier to entry.

Discord Potential

One of the beneficiaries of the COVID-19 crisis, Discord’s ability to facilitate connectivity for both entertainment and professional endeavors imbued the underlying platform with astounding relevance. Not only did Discord alleviate the stress associated with social isolation during the doldrums of the pandemic, it helped sustain productivity among workers who were suddenly thrust into an entirely new paradigm.

In addition, Discord may have enabled some households to move away from metropolitan centers to the suburbs, thus affording the platform continued relevance as a necessary means of conducting business.

Still, what COVID-19 gave, it could also take away. For instance, the pivot to telecommuting might not be permanent. Another factor to consider is that because of the rising threat of cyberattacks, some companies worry about excessive digital dependencies, thus cutting into Discord’s revenue base.

Where to Buy Discord IPO Stock

Although Discord is not yet available, it doesn’t hurt to research the basics such as learning how to buy stocks. Additionally, you may want to research which brokerages suit your needs the best.

Discord Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

Discord Pre-IPO

Open an account with Freedom Finance for potential information about Discord’s pre-IPO round.