(Credit: Hindenburg via Roblox)
Investment research and advocacy firm Hindenburg says it's shorting Roblox stock because the game platform is misleading investors by overstating player counts and presenting financial figures that paint the company as profitable.
Roblox also hosts a range of "experiences" or rooms that are inappropriate for minors, like "bathroom simulators" and "public pools" where players simulate sexual acts, making the platform a "pedophile hellscape" for minors, according to the report published Tuesday.
Roblox has misled investors by conflating the number of "people" using its platform with its daily active user counts, up to 30% or so of which could actually be bots, Hindenburg alleges, citing a former Roblox data scientist. Roblox is able to track which of its users have multiple accounts, according to multiple former employees, and the company reports the higher "user" numbers publicly while retaining the actual number of real human users for internal purposes.
A former Roblox data scientist reportedly said that bot activity from Vietnam "inflated" Roblox's user counts "like crazy, insane, in terms of engagement, DAU[s]." Hindenburg also accuses Roblox of overstating the total amount of "engagement hours" on its platform. Roblox says it got 2.4 hours on average per user per day last year. But Hindenburg's hired technical consultant tracked Roblox's top 7,200 games, and found data that suggests that average figure of 2.4 hours may actually be closer to 22 minutes. The report also claims that Roblox's attempt to present itself as financially successful are not accurate.
"We totally reject the claims made in the report," a Roblox rep tells PCMag via email, emphasizing the company's growth. "The financial claims made by Hindenburg Research are simply misleading. The authors are, admittedly short sellers (and have an agenda irrespective of the substance of Roblox’ business model and results). Over the past four quarters, our bookings, the amount of cash receipts, have grown over 22% from $780.7 million in Q2 2023 to $955.2 million in Q2 2024, or over 22%. Over the same time, the company has generated $576 million of free cash flow.
"An examination of our GAAP balance sheet and our GAAP cash flow statement makes that clear," the Roblox rep continues. "The focus on cash bookings and free cash flow are themes that we have focused on consistently with investors dating back to our days as a private company. The author made no attempt to highlight any of that because the positive facts simply don’t support their agenda."
Hindenburg also accuses Roblox of being an "X-rated pedophile hellscape, exposing children to grooming, pornography, violent content, and extremely abusive speech." It found hundreds of player accounts taking on the names of sex offenders like Jeffrey Epstein and Earl Brian Bradley and alleged sex traffickers like rapper P. Diddy.
Questionable games found on the platform include "bathroom simulators," "adult" rooms where users allegedly trade child pornography, pools where players go naked and simulate sex acts, "escape freaky Diddy party," "escape to Epstein Island," "therapy" rooms where players are lured into sexual conversations, and rooms where players are encouraged to shoot up hospitals or abuse pregnant women or homeless people. PCMag was able to verify the existence of dozens of bathroom simulator rooms on Roblox, as well as many Diddy-themed escape rooms.
Roblox has said that 21% of its users are under age 9. But Roblox doesn't verify user ages with ID, so it's also possible for players to lie about their age (claiming to be older or younger than they actually are). This could mean that predators may pose as children or children may pretend to be older to get around age restrictions.
Hindenburg also spoke with Roblox moderators, whom it claims are "largely" employees at call centers in Asia being asked to examine "countless instances of child grooming and bullying with a limited ability to keep perpetrators off the platform permanently."
Roblox, however, denies these claims as well, telling PCMag in a statement that its platform is "safe and secure."
“We totally reject the claims made in the report. Safety and civility have been foundational to Roblox since our inception nearly two decades ago, and we have invested heavily throughout our history in our Trust & Safety efforts. Every day, tens of millions of people of all ages have a safe and positive experience on Roblox, abiding by our Community Standards. We take any content or behavior on the platform that doesn’t abide by our standards extremely seriously and we have a robust set of proactive and preventative safety measures designed to catch and prevent malicious or harmful activity on our platform. For more information about our safety efforts, see our recent blog post.”
Roblox has previously been accused of having a problem with child predators on its platform. It's also been accused of exploiting child labor and facilitating underage gambling. Parents have also sued Roblox, claiming the platform is unsafe for kids.
But Roblox has similarly denied these claims, instead asserting that it's working hard to keep its underaged players safe online. The company has also been steadily progressing on new AI tools, and already uses over 250 on its platform today.