Short sellers accuse Roblox of inflating user counts and allowing child exploitation

A research firm published a scathing report about Roblox on Tuesday, accusing the company of inflating its user statistics and allowing bad behavior on the platform. Although Hindenburg Research has a somewhat bad reputation, the report at least raises questions about the safety and performance of this platform.

First, Hindenburg Research is known for delving deeply into the practices of public companies, discovering the behavior that is sketchy and publishing it. However, as noted by Simon Carless, gaming industry veteran and author of GameDiscoverCo The newsletter, Hindenburg also used to sell the gradual collapse of companies, literally betting that his research would lead to their failure. Reuters notes that Hindenburg has sunk the prices of Super Micro Computer shares and shares held by investor Carl Icahn, India’s Gautam Adani.

So, despite making some eyebrow-raising points in the report, you might want to take the Hindenburg with more than a few grains of salt. On the other hand, some of its investigations have led to SEC investigations.

As for the specific claims, researchers say Roblox’s stock price is partially based on misleading data. Hindenburg says that Roblox is increasing statistics such as user numbers and engagement, combining daily active users with visitors. “Our research shows that Roblox lies to investors, regulators, and marketers about the number of ‘people’ on its platform, inflating a key metric by 25-42%+,” writes Hindenburg Research. “We’re also showing how engagement hours, another key metric, are increasing by an estimated 100%+.”

Hindenburg quotes former Roblox employees in its report. One says that a company can track users through alt accounts, but tracking public users doesn’t fix those. “If I have 10 alts [alternate accounts]because I farm Animal Simulator 10 accounts and all of them run a script on different virtual machines on my computer – they all still come from the same IP address,” Hindenburg quoted the former employee as saying. “I created all 10 of those accounts. Their names are the same. Times their account creation are the same…I’m still 1 player, not 10.”

“De-alting” Roblox’s numbers, which means adjusting alt accounts to get a more accurate picture of player count, is suspected to lead to much lower numbers. One of the Roblox employees reportedly told Hindenburg, “Suppose if that number [DAUs] not wasted, I think the original will be like anywhere between 30 to 20% less…”

A Roblox spokesperson provided Engadget with a published statement denying Hindenburg’s claims. The company noted that it regularly files a note with investors explaining how its performance metrics are calculated — and has done so since its initial public filing.

“The financial claims made by Hindenburg are misleading,” Roblox wrote. “The authors are short sellers and have an agenda regardless of Roblox’s business model and results.”

Carless also advises taking the researchers’ claims with a grain of salt. “Our opinion on this is that there is no Roblox ‘bad behavior’ here,” wrote a former game developer and GDC presenter. “The game is big and chaotic, so there will be bots and weird behavior all over the place.”

Talking to ReutersWedbush Securities analyst Michael Pachter went further, accusing Hindenburg of getting the game’s metrics all wrong. “There are a lot of interesting points in that report, but they don’t seem to understand a lot about how games work,” Pachter said. He said the research firm measures engagement based on a “session.” However, players often log in multiple times every day, playing different games. “The Hindenburg test seems to measure the length of a single game session for each user,” Pachter said.

Hindenburg’s report also accuses Roblox of “risking the safety of children in order to report growth to investors.” He even blames the platform for allowing comedians to thrive on the platform.

“In the second quarter of 2024, in the push for profit, Roblox reported a 2% year-over-year decrease in trust and security costs,” Hindenburg wrote, highlighting the company’s shift to AI moderation. “The crux of the problem is that Roblox’s social media features allow abusers to effectively target hundreds of children, without any pre-screening that prevents them from joining the platform.”

Roblox’s child safety issues have been reported before.

Hindenburg said he tried to set up an account under “Jeffrey Epstein,” but found the username taken, “and 900+ variations.” One account, “JeffEpsteinSupporter,” reportedly has multiple badges for spending time on children’s games. Others had disturbing usernames aimed at grooming or raping children. Even if those accounts were made by hungry teenagers or adults using edgelord’s efforts to “come,” those allegations, if true, represent a serious failure of moderation.

Roblox has written that it takes user trust and children’s safety seriously. “Every day, tens of millions of users of all ages have a safe and positive experience on Roblox, adhering to the company’s Community Standards,” the company wrote in a statement. “Roblox takes any content or behavior on the site that does not conform to its standards extremely seriously, and Roblox has a strong set of proactive and preventative security measures designed to catch and prevent bad or dangerous activity on the platform.”