Hindenburg Research has taken a short position on Roblox, accusing the company of overstating its active user numbers by 25-42% to mislead investors, regulators, and advertisers.
The report points out that there are many bots on the platform, affecting popular games like “Adopt Me!” and “Blox Fruits.” A former data scientist mentioned that user activity in Vietnam significantly inflated Roblox’s numbers.
Hindenburg also questions Roblox’s claim that users spend an average of 2.4 hours per day on the platform, suggesting that this engagement figure is exaggerated.
Roblox is an online gaming platform worth $27 billion and is based in San Mateo, California. The company was founded in 2004 and is run by its founder and CEO, David Baszucki.
Since going public, Roblox has reported losses every quarter, totaling $1.07 billion in the last twelve months. Its stock is valued at 8.6 times its sales, which is 57% higher than its gaming competitors, indicating that investors expect the company to grow and become profitable quickly.
Insiders have sold $1.7 billion in stock since Roblox went public in 2021. In the past year, they have sold around $150 million in stock, with about $115 million of that sold by CEO Baszucki himself.
Since Roblox is not making a profit, its stock price depends on the growth numbers it shares with investors. Our research suggests that Roblox is misleading investors, regulators, and advertisers about the number of users on its platform, exaggerating this key metric by 25-42%. Additionally, we estimate that the number of engagement hours, another important metric, is inflated by more than 100%.
Before going public, Roblox has reported the number of “people” using its platform in many official communications to investors. For instance, in a quarterly report from 2022, Roblox stated, “there are over 54.1 million people coming to Roblox every day.”
Our research shows that the number of “people” reported by the company often aligns with their reported Daily Active Users (DAUs). However, according to Roblox’s own explanations, DAUs “are not a measure of unique individuals accessing Roblox,” since one person can have multiple accounts, including alternate or bot accounts.
Given these definitions, we believe Roblox is intentionally mixing up “people” with DAUs, which inflates the reported number of users on its platform.
In 2023, Roblox informed the SEC that it is “unable to identify if a user has multiple accounts.” We believe this response is misleading.
Several former employees told us that Roblox does keep track of single users with multiple accounts, a process they call ‘de-alting.’
Interviews indicate that Roblox uses two different methods for counting users: one for internal business decisions, where multiple accounts are ‘de-alted,’ and another for financial reporting that shows higher metrics to investors. A former data scientist stated, “If that number [DAUs] is not de-alted, I think the actual one would be anywhere between 20 to 30 percent lower.”
Roblox forums show that many users create multiple alternate accounts to “farm” for items, avoid bans, and increase their follower counts, among other reasons.
In addition to these alternate accounts, bots are also widespread on the platform. For example, Roblox’s seventh most popular game, Adopt Me!, has received over 83,000 signatures on Change.org to have it removed due to severe “botting” issues that are said to “break” Roblox.
The second most popular game, Blox Fruits, sees a lot of traffic from Vietnam, where we discovered several Facebook groups, including five with between 50,000 and 117,000 members each, that advertise tools for running over 20 Roblox bot tabs simultaneously. A former data scientist mentioned that the activity from Vietnam “inflated a lot of our numbers. Like crazy, insane, in terms of engagement and DAUs.”
We also suspect that Roblox significantly overstates another important metric, “engagement hours.” The company claimed an average of 2.4 hours of engagement per day per user in 2023. This is 58% higher than the average time U.S. children aged 8-12 spend playing all mobile games (including tablets), according to a 2021 survey. It is also 26% to 166% more time than users spend on popular social media platforms like YouTube, TikTok, and Instagram.
To better understand the engagement reported by the company, we hired a technical consultant to monitor around 7,200 Roblox games across about 2.1 million servers, collecting 297.7 million rows of real-time player data.
The data suggests that Roblox may be greatly exaggerating the actual level of user engagement on its platform. Our analysis of an average of 30.4 million unique daily users found that they spent only about 22 minutes in games each day.
Further analysis of playtimes revealed many games where obvious bot accounts stayed in-game for more than 24 hours straight. Our sample flagged millions of “zombie” engagement hours, which can significantly distort Roblox’s reported “average” engagement.
Roblox encourages developers to create ‘AFK’ (Away From Keyboard) games that inflate engagement numbers by linking part of their pay to how much engagement their games receive. Web forums discuss various strategies that developers use to create features that attract bots and generate “zombie” engagement.
We believe Roblox should report its estimated metrics after removing bot and alternate accounts, so investors, advertisers, and regulators have a clearer understanding of the actual number of users on the platform and their real level of engagement.
In addition to inflated user metrics, our in-game research uncovered a troubling environment where children are exposed to grooming, pornography, violent content, and abusive language.
Roblox is compromising child safety to show growth to investors. A former senior product designer stated, “If you’re limiting users’ engagement, it’s hurting your metrics… in many cases, the leadership doesn’t want that.”
In the second quarter of 2024, as part of efforts to become profitable, Roblox reported a 2% year-over-year decrease in its trust and safety expenses.
A key issue is that Roblox’s social media features allow predators to target hundreds of children easily, with no initial screening to stop them from joining the platform. For instance, in 2018, before Roblox went public, a 29-year-old was caught by police with 175 hours of video footage showing him grooming and engaging in explicit activities with 150 minors on online platforms, including Roblox.
Reports from the media and non-profit organizations between 2020 and July 2024 have exposed problems like digital strip clubs, red-light districts, sex parties, and child predators on Roblox. In 2024, the National Center on Sexual Exploitation called Roblox “a tool for sexual predators and a threat to children’s safety.”
Many criminal cases from 2019 to 2024 claim that sexual predators groomed children aged 8 to 14 in the game and then kidnapped, raped, or exchanged sexual content with them.
Other Roblox users have reported problems like simulated rape, naked users, and widespread sexual harassment in the game.
Despite Roblox’s claims of having the “best in the world” content moderation, our interviews with moderators revealed that safety measures were mostly handled by Asian call centers. Moderators stated they were paid $12 a day to review numerous cases of child grooming and bullying but had limited power to permanently ban offenders from the platform.
On top of these issues, Roblox is facing market saturation in its top areas, like the U.S. and Europe. A former employee mentioned that the company is trying to maintain the appearance of growth by bringing in users from markets like Asia, even though these users often generate losses. Profitability has dropped, even as user metrics have increased.
The rate of new daily active users converting to paying users has been steadily declining since 2020. Roblox is now trying to create growth by telling advertisers that about 79.5 million “people” spend an average of 2.4 hours each day on the platform.
As mentioned earlier, we believe these numbers are greatly exaggerated and that the platform poses significant reputational risks for advertisers. For example, we found Instagram ads appearing in the same school simulator game alongside Nazi hate speech and explicit images.
Overall, we think Roblox has taken a Silicon Valley approach of “growth at all costs,” misleading or lying to investors about its key metrics and allowing dangerous predators and inappropriate content that is not suitable for children on its platform.
Source: Hindenburg Research
Stay informed with our financial updates, stocks, bonds, commodities. Get global & political insights. Follow us & enable notifications for the latest updates.
