Roblox Stock Decline Following Short Report

Roblox's stock fell over 9% in premarket trading on Tuesday after a severe short report by Hindenburg Research.

Key Criticisms

The report accuses the online gaming platform of:
– Inflated user metrics
– Continuous financial losses
– Serious safety issues impacting child users

Hindenburg emphasizes that Roblox has yet to turn a profit since its IPO, incurring losses of $1.07 billion in the past year. Despite a market valuation of about $27 billion, the stock trades at 8.6 times its sales, much higher than its gaming competitors—suggesting unrealistic growth expectations.

The report claims that Roblox has misrepresented user numbers, stating, "Our research indicates that Roblox is lying to investors, regulators, and advertisers about the number of 'people' on its platform, inflating the key metric by 25-42%+.” Hindenburg also argues that engagement hours are overstated by more than 100%.

Additionally, the report suggests that Roblox's reported Daily Active Users (DAUs) are misleading due to potential duplication from multiple accounts.

A former data scientist indicated that the actual DAUs could be 20-30% lower.

Safety Concerns

Hindenburg raises substantial safety alarms regarding Roblox's moderation, claiming it exposes children to inappropriate content and predatory conduct. The report accuses Roblox of a 'growth at all costs' approach, risking user safety by misleading investors and allowing dangerous interactions on the platform.

Following the report, Hindenburg Research announced it has initiated a short position in Roblox.