Inflated DAUs, "zombie" engagement, bot incentives: Hindenburg Research drops bomb on Roblox

The so-called “activist short-selling” firm Hindenburg Research has released a report on Roblox and its business. The company accused the game platform of manipulating metrics and lying to investors, among other things.

What happened?

Hindenburg Research published its Roblox report on October 8. It is worth reading in full, especially if you want to drill down to get the full picture, but below are the key takeaways.

• Roblox is lying to investors, regulators, and advertisers about the number of real people on its platform, Hindenburg Research claims. The key metrics might by inflated by 25-42%.
• The platform has reported the number of “people” several times, which the research found regularly matched its daily active users (DAUs). Roblox reached a record 79.5 million DAUs in Q2 ended June 30, 2024.
• However, the platform itself says DAUs “are not a measure of unique individuals accessing Roblox,” adding that this metric can include alternate and bot accounts.
• Although Roblox told the US Securities and Exchange Commission (SEC) last year that it can’t identify if a user has multiple accounts, Hindenburg alleges that the company “intentionally conflates” real people with DAUs and inflates the numbers presented in its financial reports.
• Multiple former employees told the firm that Roblox has separate sets of metrics for internal business decisions (with alt and bot accounts filtered out) and for investors (with inflated metrics).
• Some experiences on the platform are reportedly filled with bots. For example, Hindenburg found numerous Vietnam-based Facebook groups for Blox Fruits, its 2nd most visited game, advertising special botting tools. According to a former data scientist, Vietnam “inflated a lot of our numbers.”
• The research firm also claims that Roblox has been inflating another metric, engagement hours. Last year, the company noted that users spent an average of 2.4 hours per day on the platform. Hindenburg found that 30.4 million unique daily users “spent just ~22 minutes in games per day.”
• There are also bot accounts that remain in-game for more than 24 hours straight, resulting in “millions of ‘zombie’ engagement hours.”
• Going to more serious allegations, Hindenburg’s report brands Roblox as “X-rated pedophile hellscape, exposing children to grooming, pornography, violent content and extremely abusive speech.” The firm believes that the company compromises child safety and doesn’t limit user engagement to present a better picture to investors.
• According to Hindenburg, predators use Roblox’s social media features to target children. Analysts also found that there is no screening that prevents people from creating accounts under the names like Jeffrey Epstein or filters adult content for underage users.
• “Registered as a child, we were also able to access games like ‘Escape to Epstein Island’ and “Diddy Party,'” Hindenburg said, adding that the “chatrooms trading in child pornography had no age restrictions.”
• Hindenburg interviewed Roblox moderators, who are paid $12 a day, to find that safety features were outsourced to Asian call centers.
• “Compounding all of the above issues, Roblox faces saturation in its top markets like the US and Europe,” the firm concluded. “It is now attempting to keep the appearance of growth alive by adding loss-generating users in markets like Asia, per a former employee. Profitability has plummeted despite reporting higher user metrics.”

Founded in 2017, Hindenburg Research targets public companies around the world to make a profit through short-selling, also describing its mission as exposing fraud and protecting investors. It has released reports on the likes of Super Micro Computer, Adani Group, Nikola Corporation. The latter resulted in its founder and CEO Trevor Milton being convicted of fraud and sentenced to four years.

What is Roblox’s response?

Roblox has denied the allegations, calling the claims made by Hindenburg Research misleading. “The authors are, admittedly short sellers and have an agenda irrespective of the substance of Roblox’s business model and results,” it said in a statement to The Verge.

Hindenburg noted on X that Roblox failed to address the core allegations regarding its lies to investors and creating a platform “with no up-front screening” and “prolific sexually explicit content” available to children.

Roblox later issued a larger post on its official website. “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,” the statement reads.

Responding to accusations of inflating metrics, Roblox referred to its most recent 10-K filing, where it states that “if a registered, logged in user visits Roblox more than once within a 24-hour period that spans two calendar days, that user is counted as a DAU only for the first calendar day” and that “undetected, fraud and unauthorized access to our platform may contribute, from time to time, to an overstatement of DAUs.”

Shortly after Hindenburg released its report, Roblox shares plunged 10% in pre-market trading (via The Wall Street Journal). However, the price ended up rising by the time the stock exchange closed. At the time of writing, Roblox’s stock was trading at €41.55 per share — up 2.57% today.