Roblox is in a fight with an activist short-seller who is trying to drive down its share price by claiming that the company runs a pedophile hellscape and lies about user numbers

Hindenburg Research is an investment research company that "specializes in financial forensic research." It has released a detailed report on Roblox's massive gaming platform, accusing the company of lying to investors to spur growth and, more sensationally, calling it a "pedophile Hellscape."

Roblox, as expected, denied the allegations. Roblox, not surprisingly, rejected the allegations outright.

Hindenburg's financial claims are misleading. The authors are short-sellers and have an agenda regardless of Roblox's results and business model.

The Hindenburg Report is extremely detailed and goes straight for the throat. It notes at the beginning that Roblox hasn’t made a profit since going public and therefore "is reliant upon the growth metrics presented to Wall Street" in order to maintain and increase the share price.

The report states that Roblox lies to investors, regulators and advertisers about how many 'people' are on its platform. This inflates the key metric between 25-42 %+,". "We also show that engagement hours, a key metric, are inflated by 100 %+."

Roblox is a huge platform, with nearly 80 million users active daily who spend an average 2.4 hours a day on it. Hindenburg claims that this is not an accurate count because it does not differentiate between individual users and bots or alt accounts. Hindenburg says that Roblox told the SEC that it was "unable to determine if a person has multiple accounts" in 2023. But Hindenburg also calls that "a flat-out lie," saying that it's spoken with former employees who claim that the company does track users with multiple account through a "de-alting" process.

Hindenburg wrote: "The data suggest that Roblox may be overstating the true user engagement on its platform. Our review of an average 30.4 million unique users per day found they spent only 22 minutes playing games each day." "Further analyses of playtimes revealed that bot accounts were in-game in many games for over 24 hours straight. Our representative sample flagged millions 'zombie engagement hours' that can majorly skew Roblox reported 'average engagement'."

The more vile accusation is that Roblox "compromises child safety to report growth to shareholders." Hindenburg claims it was able access a variety of adult and illegal content, despite stating its age to be "under 13," when setting up an online account. It cites many specific examples of games centered around violence and sexual content, sometimes both. It also claims moderation is "largely outsourced to Asian Call Centers," with moderators being paid $12 per day to review countless cases of child grooming and bulling with a limited capability to keep perpetrators permanently off the platform.

The report continues: "For example, we found Instagram advertisements in the same school simulation game with Nazi hate speeches and photos of male genitalia."

This is not a new thing. The report's depth and detail is impressive, but Roblox has had problems with child safety for years. In 2023, the company was sued over sexual content and a grooming issue. And in 2024, a report about a Roblox player named DoctorRofatnik revealed he used Roblox to abduct and assault a girl aged 15 - 18 months after being reported by the community as a predator.

Simon Carless, an industry analyst, has a good take on this report in his GameDiscoverCo Newsletter. He writes that Roblox is "giant and chaotic, and there will be bots and strange behavior all over," but there's not much evidence of "systemic poor behavior." He also acknowledged that, while some of the Hindenburg Report "comes across as mudslinging," there are a few fair points in it, especially with regard to bot detection and moderation.

"With tens and millions of preteens, but also a bunch teenage (and postteen!) Carless wrote that there will be a lot of bad content with edgelords in the game and the easy creation of 3D level. "Roblox needs to do better."

Hindenburg Research does have a financial stake in the Roblox share price falling. The company is focused on "activist-short-selling," which means it invests in companies to ensure that it makes a profit when the share price of that company falls rather than increases. Hindenburg, as revealed in the report, has taken a short-position on Roblox Corporation. A decline in the price of the company, which could be sparked by a negative report like this one, is therefore good news for Hindenburg. A MSN report states that Roblox Corporation's stock price dropped by nearly 4% following the release of the report.

Hindenburg has not backed down from its claims. Roblox's response to the report is "a blatant failure to address two core allegations of our report."

Roblox's response to Hindenburg included a link to its "Special note regarding operating metrics" filing, which breaks down its use and breakdown of average daily active users as well as other metrics. It said that it was looking forward to answering any questions and discussing its latest financial results on the company's quarterly earnings call, which will take place on October 31, as well as to discuss its most recent financials.