Hindenburg Research has recently declared a short position in Roblox on Tuesday, accusing the famous US-based gaming platform of inflating key metrics such as daily active users (DAU) and engagement. Roblox shares fell as much as 9 per cent in response to the charges, raising questions about the company's growth plan and safety measures.
Hindenburg claims that Roblox misleads investors, authorities and marketers by inflating its DAUs. It says that the corporation conflates platform visits with unique individuals, increasing its DAU total by 25 to 42 per cent. According to the research, these data may contain bots and other identities, resulting in a huge overstatement of user activity.
"Roblox is lying to investors, regulators and advertisers about the number of 'people' on its platform," Hindenburg stated in its analysis. The company also uncovered ‘bot farms,’ where virtual items are manufactured by automated programs, hence inflating interaction numbers.
Aside from the alleged manipulation of important figures, Hindenburg also made charges about child safety on the network. According to the research, Roblox prioritises user interaction over safety, exposing minors to grooming, pornography, violent content and abusive language. A former senior product designer was quoted as voicing concerns that Roblox leadership is hesitant to implement strong safety rules since they lower user engagement, which has a direct impact on the company's success metrics.
Roblox's trust and safety spending fell by 2 per cent year on year in the second quarter of 2024, raising questions about the platform's dedication to child protection. Hindenburg also cited a 2018 case in which a 29-year-old man was jailed after recording 175 hours of video showing him grooming youngsters on several platforms, including Roblox. These charges have rekindled arguments over game platforms' responsibilities to safeguard child safety online.
Roblox, which makes the majority of its revenue from in-game sales with its virtual currency, Robux, refuted the allegations. According to a corporate spokeswoman, Hindenburg's assertions are ‘completely untrue’ and do not adequately represent how the platform generates metrics.
Wedbush Securities analyst Michael Pachter criticised Hindenburg's report, claiming that the short seller misunderstood the operation of gaming platforms. Pachter stated that Hindenburg most likely monitored session length for particular games rather than how users interacted across various games on the site, resulting in incorrect engagement metrics.
As of 30 June, Roblox reported 79.5 million daily active users, a figure that is now under severe examination as Hindenburg's charges call into doubt the veracity of Roblox's stats and the transparency of its reporting processes.
Hindenburg Research is not new to high-profile investigations. The business has previously targeted companies associated with billionaire Carl Icahn, India's Gautam Adani and AI-server manufacturer Super Micro Computer. Roblox has now joined the list of companies affected by Hindenburg's reports, with the gaming platform under pressure to clarify its user stats and address worries about kid safety. Despite the backlash, some industry analysts have disputed Hindenburg's assertions, citing the difficulty of evaluating participation on a diverse site like Roblox.
