Hindenburg Research shorts Roblox, alleging inflated metrics
Hindenburg Research, a short-selling firm, released a report on Tuesday accusing the gaming platform Roblox (RBLX) of inflating its user metrics and prioritizing growth over child safety. The report alleges that since going public in 2021, Roblox has exaggerated daily user and engagement figures presented to investors. Additionally, Hindenburg claims the company has neglected to implement adequate measures to protect children from predatory behavior and inappropriate content.
The firm’s research is based on interviews with former Roblox employees and personal experience using the platform. According to Hindenburg, Roblox has favored growth at the expense of child safety, raising concerns about the platform’s handling of user engagement.
A spokesperson for Roblox rejected the report’s findings, calling them “misleading” and suggesting that Hindenburg has an ulterior motive. “We firmly believe that Roblox is a safe platform and stand by the financial metrics we report,” the spokesperson said.
Roblox has previously faced criticism from child advocacy groups regarding the safety of its platform. The company has maintained that safety and civility are core to its mission, investing heavily in AI-driven moderation technologies to prevent harmful activities.
On Tuesday, Roblox shares fell by approximately 2% after the report’s release, following a 10% drop in premarket trading. The company, which allows users to create and play games, many of whom are under 13, reported $2.8 billion in revenue last year and currently holds a market value of $27 billion. Its bookings, a key performance metric, have grown by over 20% in the past year, according to a company spokesperson.
Roblox has faced additional challenges, including being blocked in Turkey in August over allegations of child exploitation in its content. The company is reportedly working with Turkish authorities to resolve the issue.
Hindenburg, which profits from short positions and whistleblower awards, has a history of targeting high-profile companies. Notable examples include its report on Nikola in 2020, which led to legal action against the company’s founder, and its 2023 report on India’s Adani Group, which wiped out over $100 billion in market value. However, not all of Hindenburg’s bets have been successful, as shown by its June 2023 criticism of Axos Financial, whose stock subsequently rose.
In its Roblox report, Hindenburg claims that the company has attracted high-profile investors like Cathie Wood’s ARK Invest while allegedly providing inconsistent data to the SEC regarding user and engagement metrics. The firm estimates that Roblox has inflated daily user numbers by 25% to 42% and engagement hours by 100%.
Hindenburg conducted an analysis of Roblox’s servers over a 10-day period, discovering that some games remained active continuously for more than 24 hours. One of the most popular games, “Blox Fruits,” was allegedly dominated by bot traffic from Vietnam. A former Roblox data scientist reportedly confirmed that this activity “drastically inflated” user engagement figures.
Regarding child safety, Hindenburg said it created an account as a user under 13 years old and found chatrooms where users openly solicited sexual favors and traded child pornography. The report highlighted games like “Escape to Epstein Island” and “Diddy Party,” both of which had inappropriate content. Hindenburg claims Roblox’s social features allow pedophiles to target children effectively.
The firm also detailed how chatrooms associated with experiences labeled “Adult Studios” had no age restrictions and were being used to exchange child pornography. Despite some actions by Roblox to block inappropriate content, the report indicates that many problematic groups remained active on the platform.
Finally, Hindenburg referenced numerous criminal indictments, dating from 2019 to 2023, involving sexual predators who used Roblox to groom children, with some cases resulting in kidnappings or sexual exploitation.
Hindenburg is obviously short on Roblox. Read more on https://qapital.co/hindenburg-research-shorts-roblox-alleging-inflated-metrics/
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