Allegations Against Roblox by Hindenburg Research

By Zaheer Kachwala

(Reuters) – Hindenburg Research disclosed a short position in Roblox on Tuesday, alleging that the gaming platform, popular among young children, inflated metrics including user numbers and engagement.

Roblox shares fell as much as 9% after the short seller claimed the company conflated daily active users (DAUs) with the number of people visiting its platform.
Hindenburg criticized the definition of DAUs, stating it does not represent "unique individuals accessing Roblox." They added that DAUs could include bots or alternate accounts.

A Roblox spokesperson denied the allegations.
This controversy marks Roblox as the latest target of Hindenburg, whose reports have affected shares of Billionaire-investor Carl Icahn, India's Gautam Adani, and AI-server maker Super Micro Computer (NASDAQ:SMCI).

"Roblox is lying to investors, regulators, and advertisers about the number of 'people' on its platform, inflating the key metric by 25-42%+," Hindenburg asserted.
The firm also claimed to have found instances of bots from different countries using alternate accounts to "farm" for goods in games on Roblox.

The platform promotes games that require less active participation, potentially inflating engagement metrics by linking developer payouts to that engagement.

In contrast to traditional video game companies, Roblox relies on user-generated content for engagement and generates most of its revenue from in-game spending on its virtual currency, Robux.
In August, it raised its annual bookings forecast due to strong in-game spending. As of June 30, Roblox reported 79.5 million DAUs.

Wedbush Securities analyst Michael Pachter noted, "There are many interesting points in that report, but they seem to misunderstand a lot about how games work."
He explained that Hindenburg measured engagement by a "session" but gamers commonly log in and out multiple times a day, playing more than one game.
Pachter added, "The Hindenburg test looks like it measured session length for a single game for each user."