Unless you are a passionate gamer, you may not have heard of Discord.
The platform is best known for its free service that allows gamers to communicate via text, voice, and video. With people stuck at home during the pandemic, it started being used for study groups, book clubs and other virtual gatherings. Discord became so popular in 2020 that the monthly active users jumped to 100 million – almost half the population of Nigeria.
So, what’s going on?
Microsoft Corp. is in talks to acquiring Discord Inc.
People familiar with the discussion say no deal is imminent but one could see why Microsoft would desire such a platform – even at a hefty $10+ billion price tag.
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It’s worth keeping in mind that Discord themselves approached Microsoft to gauge interest and have also approached different companies for offers.
Why is this important?
The possible acquisition of Discord by Microsoft could help drive Microsoft’s Xbox Game Pass subscriptions by combining the platform’s premium subscriptions into its gaming service. While San Francisco-based Discord offers free services, the premium Nitro offering allows bigger file uploads, HD live streaming, server boosts and more.
Microsoft’s gaming segment has been quite active, it was only last year that the tech giant finalized an acquisition of ZeniMax media – the owner of video game publisher Bethesda for $7.5 billion. Given how sales of video games were boosted significantly during the pandemic last year, it’s not hard to see why Microsoft is so keen.
Will this be a right fit?
The nature of Discord and the services it offers goes in line with Microsoft’s gaming console and its Xbox Live multiplayer services which have been rebranded Xbox Network.
Despite the tech giant’s failed attempts to gobble up Tiktok last summer, it remains ambitious to including social media elements in its gaming segment. Microsoft also approached Pinterest in recent months about a deal…but talks are “currently not active”. Another thing to keep in mind is that the acquisition of Discord could keep it out of the hands of a rival like Amazon. For a company that seems to have an abundance of cash, loves buying things, and wants to expand its gaming segment, this could be a nice fit.
What could go wrong?
Discord is not yet profitable.
Although sales shot up from $45 million in 2019 to $130 million in 2020, the company still has a long way to reach breakeven – especially after all that funding.
The response from gamers has not been encouraging. Twitter was full of people asking Discord not to sell earlier in the week. Some channels were even created on the Discord platform with negative reactions to the idea of the acquisition. Should this acquisition move forward, it remains uncertain how the gaming community will respond.
What about Microsoft shares?
So far, the tech giants’ shares have reacted positively to the news – currently up more than 3% this week and over 6.8% year-to-date.
Prices remain bullish on the daily charts as there have been consistently higher highs and higher lows. A solid move above $240 could open the doors towards fresh all-time highs beyond $246.01. If $240 proves to be reliable resistance, a decline back towards $229.26 could be on the table.
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