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Discord Interviews Banks for Possible Direct Listing

(Bloomberg) -- Discord Inc., a social communications platform that is particularly popular with gamers, is interviewing investment bankers about going public as soon as this year, according to people familiar with the matter.

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Because Discord is well-capitalized and has the brand recognition needed to bypass traditional investment pitches, it’s considering a direct listing, said the people, who asked not to be identified because the information was private. The company hasn’t made a final decision, though, and could still pick an initial public offering, the people said. The public debut could also slip to next year, they added.

A spokesperson for San Francisco-based Discord declined to comment.

Discord, last valued by private investors at about $15 billion, is especially popular with gamers and young people. Its success caught the attention of potential suitors, including Microsoft Corp., which was rebuffed after offering $12 billion for it last year.

Despite a troubled environment for technology stocks, people close to Discord believe that the company’s current popularity will help it appeal to Wall Street, with one person noting that the company has seen significant growth in revenue.

Subscription Revenue

Discord allows users to communicate via text, audio and video. It generates revenue via premium subscriptions for added functionality.

The company makes money from its Nitro upgrade subscription options and last year began testing a ticketed events feature. After its beginnings as a niche chat tool for gamers, Discord said last year that it had more than 150 million users each month, and brought in more than $100 million in revenue in 2020.

Discord saw a surge in users during the coronavirus pandemic, while people were stuck at home and looking for new ways to connect online. In December, the company hired a new chief operating officer, Liz Hamren, away from Microsoft.

The company’s backers include Index Ventures, Greylock Partners, Benchmark and Spark Capital. It has raised more than $1 billion in financing to date, according to data provider PitchBook.

Advocates for direct listings contend they are a better deal for startups and their investors than IPOs, which require underwriting fees and come with expectations of a first-day share pop. In a direct listing, investors typically don’t have to wait for a lockup period to sell stock either.

Spotify, Slack

Companies don’t raise capital by issuing new shares as in a traditional IPO, though, and they still pay banks to advise them.

Spotify Technology SA and Slack Technologies Inc. blazed the trail for direct listings, and were followed by Palantir Technologies Inc. and Asana Inc. in 2020. Last year, companies including Coinbase Global Inc., Roblox Corp., Amplitude Inc. and Warby Parker Inc. went public through direct listings.

EXPLAINER: What Discord Is, and Why Microsoft Covets It: QuickTake

(Updates with revenue in seventh paragraph)

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