Short sellers accuse Roblox of inflating user stats and enabling child exploitation

A research company published a damning report about Roblox on Tuesday, accusing the company of inflating its active user counts and enabling predatory behavior on the platform. Although Hindenburg Research has a somewhat notorious reputation, the report at least raises questions about the platform’s safety and viability.

First, Hindenburg Research is known for taking deep dives into public companies’ practices, finding sketchy behavior and publishing it. However, as noted by Simon Carless, a gaming industry veteran and author of the GameDiscoverCo newsletter, Hindenburg also tends to short-sell the companies’ downfalls, literally betting that its research will lead to their failures. Reuters notes that Hindenburg has previously sunk the share prices of Super Micro Computer and stocks owned by investor Carl Icahn, India’s Gautam Adani.

So, despite making some eyebrow-raising points in the report, you may want to take 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, the researchers say Roblox’s stock price is partly based on misleading data. Hindenburg states that Roblox is inflating stats like user numbers and engagement, conflating daily active users with visitors. “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 25-42%+,” Hindenburg Research wrote. “We also show how engagement hours, another key metric, is inflated by an estimated 100%+.”

Hindenburg quotes former Roblox employees in its report. One claims the company can track users with alt accounts, but its public user tracking doesn’t adjust for those. “If I have 10 alts [alternate accounts], because I’m farming Pet Simulator on 10 accounts and all of those are running a script on different virtual machines in my computer — they’re all still coming out of the same IP address,” Hindenburg quotes the former employee as saying. “I made all 10 of those accounts. Their names are similar. Their account creation times are similar…I’m still one player, not 10.”

“De-alting” Roblox’s numbers, which means adjusting for alt accounts to get a more accurate picture of player count, would allegedly lead to much lower numbers. One of the former Roblox employees reportedly told Hindenburg, “Let’s say if that number [DAUs] is not de-alted, I think the actual one would be like anywhere between 30 to 20% lower…”

A Roblox spokesperson provided Engadget with a published statement denying Hindenburg’s claims. The company noted that it regularly includes a note to investors explaining how its operating 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 irrespective of the substance of Roblox’s business model and results.”

Carless also advises taking the researchers’ claims with grains of salt. “Our view on this is that there’s no systemic ‘bad behavior’ by Roblox here,” the former game developer and GDC co-runner wrote. “The game is giant and chaotic, so of course there are going to be bots and weird behavior all over the place.”

Speaking with Reuters, Wedbush Securities analyst Michael Pachter went even further, accusing Hindenburg of getting gaming metrics all wrong. “There are many interesting points in that report, but they seem to misunderstand a lot about how games work,” Pachter reportedly said. He said the research firm measured engagement based on a “session.” However, gamers typically log on multiple times daily, playing various games. “The Hindenburg test looks like it measured session length for a single game for each user,” Pachter said.

Hindenburg’s report also accuses Roblox of “compromising child safety in order to report growth to investors.” It even goes as far as accusing the platform of allowing pedophiles to flourish on the platform.

“For the second quarter of 2024, in a push toward profitability, Roblox reported a 2% year-over-year decline in its trust and safety expenses,” Hindenburg wrote, highlighting the company’s shift to AI moderation. “Core to the problem is that Roblox’s social media features allow pedophiles to efficiently target hundreds of children, with no up-front screening to prevent them from joining the platform.”

Roblox’s child safety problems have been reported before.

Hindenburg said it tried to set up an account under “Jeffrey Epstein,” only to find the username was taken, “along with 900+ variations.” One account, “JeffEpsteinSupporter,” reportedly had multiple badges for spending time in children’s games. Others had disturbing usernames alluding to grooming or raping minors. Even if those accounts were made by attention-starved teens or young adults using edgelord attempts at “humor,” those allegations, if true, represent a colossal moderation failure.

Roblox wrote that it takes user trust and child safety seriously. “Every day, tens of millions of users of all ages have safe and positive experiences on Roblox, abiding by the company’s Community Standards,” the company wrote in a statement. “Roblox takes any content or behavior on the platform that doesn’t abide by its standards extremely seriously, and Roblox has a robust set of proactive and preventative safety measures designed to catch and prevent malicious or harmful activity on the platform.”This article originally appeared on Engadget at https://www.engadget.com/gaming/short-sellers-accuse-roblox-of-inflating-user-stats-and-enabling-child-exploitation-205635537.html?src=rss