Thoughts on Discord's IPO

Balancing user interest with shareholder value

Mar 27, 2025

The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.

What a difference a GDC makes.

Having successfully survived another edition of the Game Developer Conference, I’m happy to be back in Brooklyn.

The tone this year was notably muted. Lobbies weren’t quite as crowded as before, but everyone was clearly on their game. Indies were pitching with a vengeance, corp dev teams were taking all kinds of meetings in search of the Next, and the traveling circus of finance folk had healthily expanded.

To combat the sad vibes that have wholly taken hold of the broader discussion on the games industry, I presented at a few venues with the message that we’ve been here before. ICYMI, whenever the music industry has a bad year, no one expects people to stop singing and dancing. Similarly, a transitional period in interactive entertainment has little to do with the innate human instinct to play. Mostly it means that big tech firms have difficulty monetizing games and, because so many of them refuse to meaningfully invest in the health of the overall ecosystem, it’ll take a moment before nature starts to heal.

Nevertheless, there’s no lack of deal-making.

Scopely just bought out the games division from Niantic for no less than $3.5 billion. Its Saudi-Arabian Daddy Warbucks is insatiable and Savvy Games Group (the finance group that makes it all happen) is planning to push into console next, according to Bloomberg. That’s encouraging to a degree, because for all the clamoring from venture funds, the average deal flow has notably subsided. The impact of large strategic investors like NetEase rolling back their presence and funding activity since the start of this year is going to have a further negative impact.
In another part of the gaming universe, Sensor Tower acquired PC and console data provider VG Insights. (Disclaimer: I’m an advisor.) The business of games data is consolidating quickly, and despite its virtually monopolistic grasp on the mobile games market, Sensor Tower is leveraging the acquisition to expand its reach. Big up to Karl and his crew!
There’s also the $900 million sale of AppLovin’s gaming division (see below).
As a bonus, Duncan Wardle, former Head of Innovation & Creativity a Disney, speculated that Disney may yet acquire Epic Games. From his perspective, “gaming is the future of Hollywood.”
And, did I mention Discord is going public?

Hope you got some sleep on the plane. Welcome home.

On to this week’s update.

BIG READ: Thoughts on Discord's public listing

Since rejecting Microsoft’s $12 billion buyout offer so many years ago, it was clear that Discord would ultimately go public. That moment seems to now have arrived.

To boost revenues, the firm started its push into ads last year and more recently doubled down on this strategy. Despite a teeming user base that grows whenever there's a shiny new application or novel technology, Discord has had mixed results monetizing its audience. Nitro, a subscription service, has done relatively well, but the 2018 launch of a game store lasted barely six months before shutting down.

Discord's remarkable ability to benefit from novel hype cycles has fueled its growth. When Fortnite first launched, Discord initially struggled to spin up enough servers to host all the chatter. Similarly during the pandemic, the platform saw its user numbers skyrocket. The crypto craze, with all its decentralized self-righteousness, subsequently found a home at Discord. Today, AI's show pony, Midjourney, is the most popular server.

Such growth comes with challenges. Discord, like Roblox, has been mired with bad actors, with incidents involving shared military information and similar scandals bringing negative attention and scrutiny from politicians. Despite lacking the size of TikTok or the deep pockets of Meta, Discord continued to grow.

It is noteworthy that Discord didn't hire its first CFO until 2021, but it has grown revenues to $600 million annually in 2024.

Discord's IPO represents a significant milestone in the evolution of online community platforms. The company now faces the challenge of proving its financial viability while maintaining its unique position as a "third place" in digital space.

Establishing meaningful emotional connections in online environments can be incredibly powerful for social behavior. A recent study observed how many users referenced "physical place analogies like 'town square,' 'cafe,' or 'game room' to describe Discord spaces. They reported a sense of community and long-lasting friendships formed in these virtual spaces, with some relationships lasting for years." It is what makes Discord special and is simultaneously the basis for its valuation.

However, monetizing its audience too aggressively post-IPO to drive shareholder value would contradict its current mission. As a public company, Discord will inevitably face increased financial scrutiny. Already, underwriters seem skeptical of Discord’s ability to drive revenue and its “low EBITDA margin.” Their inevitable demand for a clear strategic direction may yet impose on how Discord manages its community.

My take: I've met Jason Citron, Discord's CEO, a few times over the years and have come to know him as a straight shooter. He lacks the frantic tech bro vibe that characterizes so many of his peers, and, despite Discord's issues with bad actors, he strikes me as genuinely concerned about the health of his community. He knows how to build value for users. Translating this community-centric approach into shareholder value represents an entirely different challenge – one that will define Discord's possible next chapter as a public company.

As Discord transitions to public markets, its success will ultimately depend on whether it can monetize attention without commoditizing the community, a balancing act few social platforms have successfully mastered.

NEWS

AppLovin it

A remarkable outlier in this quarter’s earnings cycle is AppLovin. It reported $3.2 billion in 2024 revenues, up 75% from a year earlier, and an increase in net income of 248% to $599 million.

On the one hand, AppLovin's advertising revenue surged 75% year-over-year to $3.2 billion in 2024, up from $$1.8 billion in the prior year. Overall revenue grew 43% to $4.7 billion. On the other hand, its Apps segment revenue remained relatively flat with a slight 3% year-over-year increase to $1.5 billion. Where a year ago its two business units were roughly the same size, the firm’s strength lies in its ability as a marketing service provider.

It makes sense then that AppLovin is offloading its entire games division—specifically, its hyper-casual and core mobile games business—for a grand total of $900 million. That breaks down to $500 million in cash and $400 million in equity. The sale is expected to close by the end of Q2 2025.

With $1.5 billion in revenue, assuming a 17% margin means a $900 million over $225 million EBITDA gives a 4x multiple (or 0.7x based on its projected ARR). It’s a not-insignificant haircut compared to what most mobile games businesses fetch (See: Scopely/Niantic).

The group’s assets are minimal, and from the looks of it the sale does not include any meaningful engineering groups or sizable studios. AppLovin’s games business lacked the clear personality and effort to sustain itself in current market conditions, despite the marketing firepower of its owner.

More broadly, mobile user acquisition spending currently totals over $30 billion annually, with approximately $15 billion spent on in-game advertising—a dramatic increase from $6 billion just a few years ago. AppLovin's ad delivery technology, which is estimated to drive twice as many installs per 1,000 views compared to its competitors, makes it well-positioned it to capture an outsized share of this expanding market.

Following a content-heavy pandemic period, successful gaming companies are now increasingly focused on optimizing distribution channels and monetization methods rather than solely developing new content. AppLovin exemplifies a firm successfully navigating the industry's transition from a content innovation phase to a period focused on distribution innovation. Precisely because connecting audiences with content has become increasingly challenging in the mobile category, firms that excel at optimizing marketing and monetization thrive. AppLovin’s divestiture of its apps business is a clear recognition of where value is migrating in the broader ecosystem.

CD Projekt share price slumps

The 13 percent drop in CD Projekt’s share price following this week's earnings call illustrates the persistent valuation disconnect between financial markets and gaming's creative reality.

The precipitous slide—triggered by confirmation that The Witcher 4 won't ship until after 2026—reflects less a fundamental business weakness than capital markets' chronic impatience with development cycles inherent to premium interactive entertainment.

The obvious misalignment between quarterly expectations and multi-year development realities isn't new. But it arrives during a critical industry inflection point. As legacy publishers face existential challenges (witness Ubisoft's real-time disassembly), CD Projekt's measured approach positions it as an increasingly distinctive player in the European development landscape.

Examining the firm's financial architecture reveals compelling countercurrents to the share price narrative. CD Projekt reported $243.8 million in revenue for 2024, down 19.9% from $304.5 million year-over-year. This anticipated decline reflects the comparative absence of major releases following 2023's Phantom Liberty expansion. Yet beneath this topline contraction, the operational fundamentals tell a different story: net profit remained remarkably stable at $116.3 million (versus $119 million in 2023)—a mere 2.3% decline despite the revenue compression.

Such resilience stems from strategic operational recalibration. The company's net profit margin expanded dramatically from 39.1% to 47.7% year-over-year, a substantial efficiency gain for a studio navigating complex development cycles across multiple AAA projects.

The long-tail performance of The Witcher 3 offers another analytical data point contradicting market pessimism. Having surpassed 50 million units lifetime, this decade-old title continues generating significant revenue—outperforming many contemporary releases while requiring minimal ongoing investment. It represents both impressive game design and sophisticated IP management that traditional valuation models seemingly struggle to capture accurately.

The dynamics reflect a broader structural evolution across the industry's economic landscape. Digital distribution now accounts for 92% of CD Projekt's total sales, completing a transformation that began with a roughly 50/50 physical/digital split a decade ago. This shift fundamentally alters the firm's distribution economics, margin structures, and ability to monetize catalog assets.

The publisher's strategic roadmap reveals distinctive contrarian positioning. While competitors pursue platform diversification amid market fragmentation, CD Projekt is deliberately narrowing its operational focus: The Witcher 4 (Polaris) is in full production, Cyberpunk 2077 II (Orion) is approaching pre-production, and Hadar—their mysterious third IP—in conceptual development.

Moreover, CD Projekt is outsourcing its mobile game development. It’s a deliberate omission in an era when many publishers chase cross-platform ubiquity. Instead, the firm announced a strategic partnership with Scopely to signal a specialist approach: core franchises remain under direct development control while mobile expansion occurs via external expertise. The arrangement, disclosed without timeline or financial specifics during the earnings call, effectively outsources mobile development while allowing the studio to maintain focus on high-fidelity narrative experiences.

Finally, the studio's technological consolidation mirrors this strategic clarity. CD Projekt has now fully transitioned to Unreal Engine 5, permanently retiring its proprietary REDengine (which remains operational solely for Phantom Liberty support). The move to platform standardization eliminates the overhead of maintaining proprietary technology while allowing development resources to concentrate on content rather than tools.

The resulting strategic profile presents an increasingly uncommon industry positioning: a mid-sized publisher deliberately reducing operational complexity to maximize creative output. No mobile development overhead. No proprietary engine maintenance. Just concentrated development capacity focused on next-generation narrative experiences—a proposition that requires longer-term investment horizons than Wall Street currently appears willing to accommodate.

Epic’s modest victory

A few weeks ago, Epic released its annual review of its Game Store.

Naturally, it’s a promo piece to showcase the firm’s progress on its digital storefront (the giant, colorful font is a dead giveaway), but it is also a refreshing piece of information. In 2024, the Epic Games Store generated $1.05 billion in revenue, up +15% from $950 million last year. It recorded 74 million monthly active users in December, down -1% from the same month a year earlier.

The 2024 report appears to be the most comprehensive in terms of user engagement metrics, particularly around daily and monthly active users. It suggests Epic is focusing more on demonstrating platform engagement and retention rather than just total user numbers or revenue figures. New additions this year were the average monthly active users (67 million, up +6%), and daily active users (32 million, also up 6%).

The 15 percent increase in annual revenue is a nice win, of course. But it is slightly offset by the -1% decline in monthly activity. Following several years of growth, the Epic Games Store appears to have hit a plateau in its user growth. However, with fewer players spending more money Epic has managed to improve its margins.

Next, now that we have five years of data we can assess the success of Epic’s push to become a competitive force among digital storefronts and gaming platforms. Despite its efforts, including both the active lawsuits against rival storefronts and an aggressive pricing war, Epic does not appear successful in establishing itself as the sizable competitor to Valve’s Steam it deserves to be. According to Epic, third-party revenue, which totaled $255 million and accounted for 23%, is at its lowest since the firm started sharing its numbers in 2020.

The bifurcation in revenue dynamics, with first-party content showing robust growth while third-party revenue is in decline, signals structural challenges.

On the one hand, Epic has successfully executed its vertically integrated content strategy. First-party revenue has nearly doubled from $435 million to $835 million. Even if Fortnite still generates a lot more revenue, it has successfully expanded its ecosystem beyond the game itself into a broader social and entertainment destination. Examples like LEGO Fortnite and the recent expansion into mobile markets, especially in Europe, reinforce this strategy.

However, the decline in third-party revenue from its 2022 peak of $355 million to $255 million in 2024 presents a more complex challenge for Epic's platform ambitions. This trend persists despite the platform's implementation of developer-friendly policies such as the 88/12 revenue split, Epic First Run program, and self-publishing tools. This divergence between platform growth metrics (295 million PC users, 74 million monthly active users) and third-party revenue performance suggests potential structural challenges in developer monetization or user conversion rates that may require recalibration.

The data indicates Epic is effectively operating two distinct but interconnected business models: a highly successful first-party content business and a still-evolving third-party platform ecosystem.

It is perhaps the result of the broader, industry-wide decline in consumer demand. But one would expect a digital storefront that is still at the beginning of its life cycle and continues to heavily invest in its various distribution options and third-party onboarding to fare better. Steam’s existing market position is so strong that it may never be possible for Epic to grow into a serious rival, despite its best efforts.

PLAY/PASS

Play. Say hello to democracy and the Helldivers 2 upcoming board game. I told you low-tech gaming is the future and the minis look scrumptious.

Play. Despite relentless corporate cutbacks, games journalism refuses to die. This week saw the return of the previously discontinued game magazine, Game Informer, and Geoff Keighley funded Chris Dring’s next adventure, The Game Business.

UP NEXT

The sprouting daffodils throughout Brooklyn tell me that Spring is coming. Something else that is on its return is the Unboxing podcast. Can’t wait!