Hindenburg Research, an investment research firm that "specializes in forensic financial research," has released an in-depth report on the massive gaming platform Roblox, accusing it of lying to investors in order to spur growth, and more sensationally, that it is a "pedophile hellscape."
Roblox, not surprisingly, rejected the allegations outright. "Roblox takes any content or behavior on the platform that doesn't abide by its standards extremely seriously, and Roblox has a robust set of proactive and preventative safety measures designed to catch and prevent malicious or harmful activity on the platform," it said in a statement.
"The financial claims made by Hindenburg are misleading. The authors are short sellers and have an agenda irrespective of the substance of Roblox's business model and results."
The Hindenburg report is remarkably in-depth and goes right for the throat, noting at the start that Roblox hasn't turned a profit since it went public and thus "is reliant on the growth metrics it presents to Wall Street" to maintain and increase its share price.
Which is problem number one: "Our research indicates that Roblox is lying to investors, regulators, and advertisers about the number of 'people' on its platform, inflating the key metric by 25-42%+," the report states. "We also show how engagement hours, another key metric, is inflated by an estimated 100%+."
Roblox is legitimately huge, reporting nearly 80 million daily active users who spend an average of 2.4 hours per day on the platform. But Hindenburg says that's not an accurate count of users because it doesn't differentiate individual users from bots and alt accounts. Roblox reportedly told the SEC in 2023 that it is "unable to identify if a user has multiple accounts," but Hindenburg calls that "a flat out lie" too, saying it's spoken to multiple former employees who claim the company does in fact track users with multiple accounts through a process called "de-alting."
"The data suggests that Roblox could be massively overstating the true level of user engagement across its platform: our review of an average of 30.4 million unique daily users found they spent just ~22 minutes in games per day," Hindenburg wrote. "Further analysis of play times showed numerous games in which obvious bot accounts remained in-game for more than 24 hours straight. Our representative sample flagged millions of 'zombie' engagement hours that can majorly skew Roblox’s reported 'average' engagement."
Our research indicates that $RBLX is lying to investors, regulators, and advertisers about the number of “people” on its platform, inflating the key metric by 25-42%+.We also show how engagement hours, another key metric, is inflated by an estimated 100%+.(6/n)October 8, 2024
The much uglier accusation is that Roblox is "compromising child safety in order to report growth to investors." Hindenburg says it was able to access a wide range of adult and illegal content despite listing its age as "under 13" when setting up an account, and cites numerous specific examples of games built around violence and sex, sometimes both, with millions of cumulative visits. It also claims that moderation "is largely outsourced to Asian call centers," with moderators "being paid $12 a day to review countless instances of child grooming and bullying with a limited ability to keep perpetrators off the platform permanently."
The nature of the content also means advertisers on Roblox, much like those on X, potentially face "major reputational repercussions," the report goes on to say: "For instance, we found Instagram ads in the same school simulator game with Nazi hate speech and photos of male genitalia."
None of this is terribly new. The depth and detail of the report is impressive, but Roblox's problems with child safety are no secret: The company was hit with a class action lawsuit in 2023 over sexual content and grooming, for instance, and in August of 2024 a report on a Roblox user named DoctorRofatnik revealed that he'd used Roblox to groom, abduct, and assault a 15-year-old girl a full 18 months after he'd been reported as a predator by the community.
Industry analyst Simon Carless has what I think is a pretty good take on the report on his GameDiscoverCo newsletter, writing that Roblox "is giant and chaotic, so of course there are going to be bots and weird behavior all over the place," but that there's no real indication of "systemic bad behavior." At the same time, he acknowledged that while some of the Hindenburg report "comes off as mud-slinging," it does make a number of fair points, particularly with regard to moderation and bot detection.
"With tens of millions of pre-teens but also a bunch of teenage (and post-teen!) edgelords hanging out in the game, and easy creation of 3D levels, there’s going to be a LOT of bad content," Carless wrote. "Roblox can—and needs to—do better here."
It is true that Hindenburg Research has a financial interest in seeing Roblox shares tumble. The company focuses on "activist short-selling," which very basically means that it invests in companies in ways that ensure it earns a profit if that company's share price falls, rather than rises. As disclosed in the report, Hindenburg has in fact taken a short position on Roblox Corporation—so a decline in the company's price, which a scathingly negative report (like, for instance, this one) might help spur, is good news for Hindenburg. And that's what happened: An MSN report says Roblox Corporation's share price dipped by nearly 4% after the report was released.
Hindenburg shows no indication of backing down on its claims, saying Roblox's statement on the report "is an abject failure to address the two core allegations in our report."
Roblox's response is an abject failure to address the two core allegations in our report, including:1. Evidence that Roblox has been systematically lying for years about the number of people on its platform and their genuine level of engagement.2. That the platform is a… pic.twitter.com/Tj2KiANOnIOctober 8, 2024
Roblox included in its response to Hindenburg a link to a recent "Special Note Regarding Operating Metrics" filing that breaks down its use of average daily active users and other metrics in greater detail. It also said it "looks forward to discussing its most recent financial results and answering any questions on the company’s third quarter earnings call," which is set to take place on October 31.
