A bombshell report by famed activist short-selling agency Hindenburg Analysis plummeted Roblox’s inventory by as a lot as 9% in intraday buying and selling after it accused the corporate of overinflating its consumer metrics and fostering an unsafe surroundings for underage customers.
The quick vendor, which disclosed a wager in opposition to the general public firm, claimed that Roblox was inflating the variety of folks visiting its platform by 25% to 42% and probably overstating the variety of engagement hours customers spent on the location by greater than double. Roblox’s inventory closed down 2.13% following the information at about $40.51 on Tuesday afternoon.
In a 2022 quarterly earnings report, Roblox claimed that 54.1 million “people” visited its web site every day to create their very own video games or play these made by others. But, Hindenburg claims Roblox equated “people” to the rather more nuanced “daily active users” determine, which might embrace bots and other people with a number of accounts.
By Roblox’s personal disclosures, every day lively customers “are not a measure of unique individuals accessing Roblox,” the quick vendor wrote in a Tuesday report. Former workers instructed the quick vendor that the corporate primarily has two figures for customers, one for inside use that filters out bots and a number of accounts tied to at least one individual, and one other for exterior publication that overstates consumer numbers by together with these components.
Hindenburg additionally mentioned Roblox may very well be exaggerating its “engagement hours” determine. A marketing consultant’s assessment of a mean of 30.4 million every day customers for Hindenburg discovered that customers spent about 22 minutes per day in video games. In the meantime, as just lately as 2023, the corporate reported a mean of two.4 hours of engagement time per day per consumer.
“We totally reject the claims made in the report. 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’s business model and results,” a Roblox spokesperson mentioned in a press release to Fortune.
One other declare by the quick vendor was that underage customers are being broadly focused in what quantities to “a pedophile hellscape for kids.” The authors allege the web site’s social media options, “allow pedophiles to efficiently target hundreds of children, with no up-front screening to prevent them from joining the platform.”
Roblox’s response is an abject failure to deal with the 2 core allegations in our report, together with:
1. Proof that Roblox has been systematically mendacity for years concerning the variety of folks on its platform and their real stage of engagement.
2. That the platform is a… pic.twitter.com/Tj2KiANOnI
— Hindenburg Analysis (@HindenburgRes) October 8, 2024
The authors discovered 38 teams on the platform the place customers traded baby pornography and solicited sexual favors, in keeping with the report. A number of different inappropriate video games and experiences tied to convicted intercourse trafficker Jeffrey Epstein and accused intercourse trafficker Sean “Diddy” Combs had been additionally obtainable to the authors, even after they created an account itemizing their age as underneath 13. The web site’s security monitoring is generally outsourced to workers in Asia who’re paid $12 a day and restricted in what they will do to completely ban offending customers, the quick vendor claimed.
“We think Roblox has adopted the Silicon Valley approach of ‘growth at all costs’, whether by misleading or outright lying to investors about its key metrics or by opening its platform to dangerous predators and illicit content unsuitable for children,” Hindenburg wrote within the report.
On high of the allegations of inflating consumer metrics and missing protections for underage customers, Hindenburg claimed that the corporate’s profitability has plummeted and it’s attempting to maintain up the looks of development by increasing to Asia, regardless that these customers are much less profitable than these within the U.S. and Europe.
Roblox mentioned in a press release to Fortune that its money receipts have grown by 22% from the second quarter in 2023 to this 12 months’s second quarter and it has guided to increased numbers for its fiscal 2024.
“We firmly believe that Roblox is a safe and secure platform and in the financial metrics we report,” a Roblox spokesperson mentioned.
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