Discord: subscription revenue sets group chat app apart

Chat rooms were the internet’s first social media networks. They may be its future. A classified Pentagon document leak has illuminated the popularity of chat app Discord, where the materials were first posted. The $15bn US company’s subscription-driven revenue and focus on private groups should drive demand in a future market listing.

Born out of a gaming development studio, Discord launched in 2015 as a place for gamers to communicate. Users have since broadened their interests, though chat rooms (known as servers) tend to favour online-centric topics. Most are private and invite only, setting the company apart from more performative social media platforms. It also raises concerns about content. Moderation costs may rise if Discord becomes a public, more heavily scrutinised, company.

Lockdown powered user numbers, which were reported at 140mn by early 2021. Growth has since steadied, suggesting the user base may now be roughly 200mn. That is about a quarter the size of Snapchat and roughly half as big as Twitter. Aping Reddit and making the user interface friendlier could lift numbers higher.

Unlike Snap, Reddit and Twitter, however, Discord is not reliant on the variables of global advertising. Most revenue comes from premium subscription service Nitro, which offers tools such as the ability to upload large files for up to $9.99 per month.

Subscriptions have become an obsession for social media companies, with Twitter, Snap and Meta all hoping fees will turn into steady, recurring revenue. Subscription fatigue could follow. But Discord’s captive audience of gamers suggests lucrative possible opportunities for additional revenue, including more deals with games distributors.

A listing this year looks unlikely. Even as inflation cools and tech stocks stage a comeback, the initial public offering market remains quiet. After raising $500mn in 2021, Discord can afford to bide its time and avoid a down round. It will still need to swallow a lower multiple. The last valuation was equal to roughly 115 times trailing revenue estimates. For a lossmaking tech company, such giddy valuations now look out of place.