Roblox has come under some scrutiny before, but not quite like this.
In a new report out this morning from short seller Hindenburg Research, the firm accuses the gaming company not just of running an in-game “pedophile hellscape”, but also inflating key metrics that have helped drive the company’s stock price since its direct listing in 2021.
Hindenburg says its research “indicates that Roblox is lying to investors, regulators, and advertisers about the number of ‘people’ on its platform, inflating the metric by 25-42%+”.
“We also show how engagement hours, another key metric, is inflated by an estimated 100%+,” the report alleges. “Since Roblox isn’t profitable, its stock price (and, in turn, insiders’ ability to dump hundreds of millions of dollars of stock) is reliant on the growth metrics it presents to Wall Street,” the firm adds.
Hindenburg writes: “To better understand the company’s reported engagement, we hired a technical consultant that monitored the top ~7,200 Roblox games across ~2.1 million Roblox servers, collecting 297.7 million rows of real-time player data.”
“The data suggests that Roblox could be massively overstating the true level of user engagement across its platform: our review of an average of 30.4 million unique daily users found they spent just ~22 minutes in games per day,” it adds.
On top of questions about daily active users and engagement hours, the short seller called its in-game experience “an X-rated pedophile hellscape, exposing children to grooming, pornography, violent content and extremely abusive speech”.
“Following years of scandals, we performed our own checks to see if the platform had cleaned up its act. As a test, we attempted to set up an account under the name ‘Jeffrey Epstein’…only to see the name was taken, along with 900+ variations,” Hindenburg wrote.
Then, the details get graphic: “After we found a username, we listed our age as “under 13” to see if children are being exposed to adult content. By merely plugging ‘adult’ into the Roblox search bar, we found a group called “Adult Studios” with 3,334 members openly trading child pornography and soliciting sexual acts from minors.”
“We tracked some of the members of “Adult Studios” and easily found 38 Roblox groups - one with 103,000 members - openly soliciting sexual favors and trading child pornography,” Hindenburg says.
The examples continued: “Posing as a child in Roblox’s “therapy” experience, our therapist introduced himself as a “rapper with only one p”. We were advised to run away from home and that he would come pick us up so we could move into his basement in exchange for paying rent with our body.”
“The chatrooms trading in child pornography had no age restrictions. Roblox reports that 21% of its users are under the age of 9, a number that is likely underestimated given that Roblox has no age verification aside from users seeking 17+ experiences,” it said.
““LGBTQ+ Vibes” is a game available to all ages that has accumulated over 40.6 million visits and over 224,000 favorites. Users regularly described lewd sex acts while others used hateful slurs,” the report added.
The report says there is “simulated rape, naked users, and rampant in-game sexual harassment”.
It also detailed violent content: “In the game “Beat Up The Pregnant”, users hacked pregnant women to death in a Wal-Mart parking lot with machetes or killed them with frying pans or a selection of guns.”
Finally, Hindenburg calls out the listen company’s valuation: “The company has reported net losses every quarter since becoming a public company, with last twelve months (LTM) losses totaling $1.07 billion. Its stock trades at 8.6x sales, a 57% premium to gaming peers, pricing in expectations of rapid future growth and profitability.”
Hindenburg, best known for its ongoing row with Indian billionaire Gautam Adani and most recently for a critical report on Super Micro Computers that came one day before the company said it had to delay its 2023 annual report filing, says that meanwhile, Roblox “insiders have cashed out $1.7 billion in stock since the company’s 2021 direct listing”.
You can read the full report here.
