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The chance for a Discord stock IPO just went higher after the company walked away from its potential Microsoft Corp. (NASDAQ: MSFT) deal.
And if Discord stock was this highly coveted by tech giants, you can bet retail investors are all over this one.
Microsoft considered buying the gaming chat company earlier this year - the number was rumored around $12 billion. This would have added to Microsoft's massive effort to expand its cloud gaming platform.
Actually, Microsoft was not the only company to lose out. Three other companies were in talks to acquire Discord. But it looks like Discord has its own plans.
Its dashing of all acquisitions reveals the company may prefer staying independent. It also maps out the strong likelihood of an IPO sooner than later.
And from the look of it, Discord could do very well on its own.
Looks can be deceiving, of course. So, here's a closer look at whether Discord stock is worth a buy after an IPO.
What Is Discord?
Discord provides a text, voice, and video chat platform. The service was initially directed at the video game community but has since expanded to other niches.
Communities in Discord are called "servers" and can be centered around just about any topic imaginable. These servers can be accessed over most Android and iOS devices.
Discord had 300 million registered users in 2020 and continues to grow.
This is especially impressive, noting that the service is only about five years old. Twitter Inc. (NASDAQ: TWTR) was founded in 2006 and so far only has 192 million daily active users.
Sure, the numbers may look different when you specify "daily active" users. But remember, Discord is still half as old, growing fast atop an extremely loyal following.
While it has been the go-to interface for gamers to chat, the scope has expanded far beyond the gaming industry into all kinds of reading, knitting, and exercise clubs.
And that says a lot about the future of this company.
What's Ahead for Discord Stock
The revenue from Discord stock's IPO might easily replace the revenue Discord would have gained in a Microsoft merger.
The company's success in the last year may have played a key role in its decision to stay independent. The pandemic caused a spike in the gaming industry and digital communication overall.
Lockdowns likely expanded the company's reach even further beyond gaming.
It saw its valuation double in six months, and that could pop even more ahead of its IPO.
Considering the momentary popularity of the Clubhouse voice communication app and Twitter trying to make its own version, Discord is far ahead of the curve with its service. Before the live voice chat craze, Discord already had themed voice chat rooms, or "servers."
This could be a sign it was doing the right thing in its first few years of operation. And given that it wants to stay independent, it appears management wants to stick with what works.
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The company wants to maintain its unique "gamer" schtick while also catering to a wide range of interests. And that seems to work. If it was gobbled up by a Microsoft or other large company, this might disappear.
Staying independent keeps Discord free to make its own decisions. It also allows it to avoid the baggage that comes with being associated with "Big Tech," which is lately not fun.
Right now, Discord seeks to raise up to $100 million in a Series H round of funding.
Companies typically enter Series F, G, and H funding stages to take more time preparing for an IPO or acquisition. In Discord's case, the company was in demand from a lot of bigger companies, so its reasons for stalling the Discord IPO seem clear, in part.
More businesses have been entering into the latter stages of funding due to the pandemic, since they wanted to ensure they have the revenue to stay afloat. And they want to know shares would still be demand in such a new business climate.
Because we know that Discord has been coveted by various big companies and its valuation doubled in the pandemic, the company is well-positioned for an IPO in the near future.
Is there any reason not to buy Discord stock when it inevitably lists? Here's your answer.
Should You Buy Discord Stock?
Buying IPO stocks can usually be a risky move as the shares are pumped out the gate by institutional investors.
Basically, top-dog traders get exclusive access to the stock before any retail investors do.
The inflation from the buy-up causes some stocks to plummet immediately following an IPO. If it's a bad stock, it could mean no bottom in sight.
However, this whole dynamic could shift with brokerages like Robinhood and SoFi angling to allow retail investors early access to IPOs.
So, if Discord shares are available early through Robinhood, you probably want to buy.
This is a premier tech stock with outstanding performance in the pandemic. And online communication is not slowing down.
The global messaging platform market is expected to grow more than 54% over the next three years, from about $2.2 billion to $3.4 billion. If you extend that to a decade and consider all the different markets Discord can address, you're looking at a ton of growth potential on a stock that has proved it can stick around even under the toughest conditions.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.
