One of Wall Street’s most aggressive short sellers has launched a shocking attack on gaming company Roblox, alleging management at the company have inflated performance numbers while cashing out tens of millions of dollars for themselves as their platform devolved into a “pedophile hellscape for kids.”
“We totally reject the claims made in the report,” said Roblox, in a statement to the Daily Beast. “We firmly believe that Roblox is a safe and secure platform and in the financial metrics we report.”
In its report released Tuesday, Hindenburg Research said executives and insiders at Roblox have sold $1.7 billion in stock since the company’s initial public offering in March 2021, $150 million of that in the last year. CEO David Baszucki, the firm said, has personally sold $115 million in the last twelve months.
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Hindenburg alleged that executives at the money-losing Roblox, in order to make their company more appealing to markets and investors, inflated the number of people using its games to make it appear as though it was growing substantially more than it was.
“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 to 42 percent,” reads the report. Roblox, it noted, said in 2022 that “over 54.1 million people” were coming to its platform “every day.”
Hindenburg alleged Roblox’s reported number of “people” instead aligns with the number of Daily Active Users (DAUs), which can include multiple accounts run by one person or bots, the latter of which it claimed “are rampant on the platform.”
“We believe Roblox intentionally conflates ‘people’ with DAUs, consistently inflating the reported number of people on its platform,” said Hindenburg. The short selling firm also accused Roblox of telling a “flat out lie” to the U.S. Securities and Exchange Commission: In 2023, the company told the regulator it is “unable to identify if a user has multiple accounts,” but Hindenburg claimed multiple former employees said Roblox internally tracks single users with multiple accounts.
Hindenburg additionally alleged that Roblox has inflated the amount of “engagement hours” per user on its platform, noting the reported 2.4 average hours of engagement per day per user in 2023 was “58 percent higher than the average time spent by U.S. 8-12 year olds playing all mobile games (including tablet), according to a 2021 survey.”
Hindenburg also claimed Roblox “paid out $963 million in dilutive share-based compensation over the last 12 months, enabling it to report positive free cash flow despite the growing net losses.”
“The financial claims made by Hindenburg Research are simply misleading,” said Roblox’s statement. “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 percent from $780.7 million in Q2 2023 to $955.2 million in Q2 2024. Over the same time, cash provided by operating activities have totaled $646.3 million, free cash flow was $440.3 million, and we have guided to even higher numbers for fiscal 2024.”
Roblox said its “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” and that Hindenburg “made no attempt to highlight any of that because the positive facts simply don’t support their agenda.”
Apart from inflating metrics, Hindenburg said in-game research on Roblox “revealed an X-rated pedophile hellscape, exposing children to grooming, pornography, violent content and extremely abusive speech.”
After setting up an account and listing the age as “under 13” Hindenburg claimed it was able to find multiple groups with thousands of members “trading child pornography” by simply searching for the term ‘adult’ in the Roblox search bar.
By tracking members in those groups, Hindenburg said it uncovered 38 groups in total, one with over 100,000 members, “openly soliciting sexual favors and trading child pornography.” These chatrooms had no age restrictions, it claimed.
Hindenburg noted that Roblox says 21 percent of its users are under the age of nine.
Registered as a child, Hindenburg was also able to access games themed around famous alleged sex criminals such as “Escape to Epstein Island” and “Diddy Party”—there were over 600 “Diddy” games with names including “Survive Diddy” and “Run From Diddy Simulator.”
Hindenburg disclosed that it has taken out a short position in Roblox, meaning it stands to profit if the company’s share price declines. Roblox shares were down 4.7 percent in morning market trading.
