Roblox Stock Declines Following Hindenburg Research Short Report

Roblox’s stock plummeted by more than 9% in premarket trading on Tuesday after a critical short report from Hindenburg Research surfaced.

The report takes aim at the online gaming platform, alleging it has inflated user metrics, suffered ongoing financial losses, and faces serious safety issues regarding child users.

Hindenburg highlights that Roblox has yet to make a profit since its public offering, reporting losses totaling $1.07 billion in the past year. Despite a market valuation of around $27 billion, the report notes that Roblox’s stock is trading at 8.6 times its sales, a figure significantly higher than that of its competitors in the gaming sector.

The short seller suggests that this high valuation reflects unrealistic expectations for Roblox’s future growth and profitability. They further claim that Roblox has consistently misled investors about its actual user numbers.

“Our research indicates that Roblox is misleading investors, regulators, and advertisers about its user count, inflating this key metric by over 25-42%,” Hindenburg stated. “Additionally, we estimate that engagement hours, another important metric, are overstated by more than 100%.”

Hindenburg also contends that the reported Daily Active Users (DAUs) could be misleading, as they might include multiple accounts controlled by a single user. A former data scientist remarked that if the number of DAUs were adjusted, it would likely reflect a decrease of 20 to 30 percent.

The report also raises significant safety concerns, alleging that Roblox’s moderation systems are insufficient, resulting in children being exposed to inappropriate content and potential predatory behavior.

Hindenburg asserted, “Roblox has adopted a ‘growth at all costs’ mentality, misleading investors about its metrics while failing to protect its young users from dangerous predators and unsuitable content.”

In light of these findings, Hindenburg Research has begun to take a short position in Roblox.