Hindenburg Research on Tuesday disclosed a short position in Roblox, accusing the popular gaming platform from the US of inflating key metrics, including user numbers and engagement. Roblox shares dropped by as much as 9% following the short seller’s claims.
Hindenburg alleged that Roblox misrepresented its daily active users (DAUs) by conflating the number of visits to the platform with unique individuals. According to the short seller, DAUs could include bots and alternate accounts, artificially boosting the numbers by 25-42%.
“Roblox is lying to investors, regulators, and advertisers about the number of ‘people’ on its platform,” Hindenburg said. The firm also claimed to have discovered bots farming virtual goods in games, contributing to inflated engagement figures.
‘Pedophile hellscape’
Besides fudging key metrics, Hindenburg has accused Roblox of compromising child safety, alleging the platform exposes children to grooming, pornography, violent content and abusive speech. A former senior product designer revealed that prioritizing user engagement over safety has been a concern: “If you’re limiting users’ engagement, it’s hurting your metrics…in a lot of cases, the leadership doesn’t want that.”
Roblox reported a 2% year-over-year decline in trust and safety expenses for Q2 2024, raising concerns about its commitment to child protection. The platform’s social features, Hindenburg claims, allow predators to target children without effective screening measures.
In one instance, a 29-year-old was arrested in 2018 with 175 hours of footage showing him grooming minors on platforms including Roblox. The allegations cast a shadow over Roblox’s pursuit of growth while sparking debate over child safety on gaming platforms.
Roblox, which makes most of its revenue from in-game purchases using its virtual currency, Robux, denied the allegations. A spokesperson for the company stated that the claims were untrue.
This is not the first time Hindenburg has targeted high-profile companies. Its previous reports have impacted firms linked to billionaire Carl Icahn, India’s Gautam Adani, and AI-server maker Super Micro Computer.
Wedbush Securities analyst Michael Pachter pushed back against Hindenburg’s claims, stating that the short seller misunderstood how gaming platforms function. According to Pachter, Hindenburg measured session length for a single game, which does not accurately reflect how users engage across multiple games on the platform.
As of June 30, Roblox reported 79.5 million daily active users. However, the allegations have raised questions about how those numbers are being calculated.