In a scathing new report, activist hedge fund Hindenburg Research has raised serious allegations against Roblox Corporation, the $27 billion online gaming platform, claiming the company has been misleading investors over user metrics and simultaneously jeopardizing the safety of children on its bustling platform.

Hindenburg is a hedge fund that has taken a short position in Roblox – meaning it is betting on the share price to fall - and its equities research unit Hinderburg Research, has serendipitously come to similar conclusions.

In it’s response, Roblox described the alliance as evidence of the research firm's vested interests. Roblox, which has about 200M monthly active users rejected claims in the Hindenburg Report although it was more detailed in refuting claims over its user metrics than the child safety problems identified by the fund.

According to a Roblox media statement, the financial claims made by Hindenburg are misleading. The authors are short sellers and have an agenda irrespective of the substance of Roblox’s business model and results.

“Roblox’s topline is growing quickly. Bookings grew over 22% to $955.2 million in Q2 2024 (the most recent publicly reported quarter) up from $780.7 million in Q2 2023. Over the last four quarters, cash provided by operating activities has totalled $646.3 million and free cash flow was $440.3 million.

An examination of Roblox's GAAP balance sheet and GAAP cash flow statement makes that clear. The focus on cash bookings and cash flow are themes that the company has focused on consistently with investors dating back to when it was a private company. The authors made no attempt to highlight any of that because the positive facts simply don’t support their agenda.

Roblox said Hindenburg’s authors neglected to accurately report on the company’s public disclosures. “Since IPO, the company has included a Special Note Regarding Operating Metrics that explains how the company’s key operating metrics (including DAUs, hours, and bookings) are calculated," its statement said.

The full Roblox response is available online.

The Hindenburg report suggests the company has been inflating its reported number of "people" on the platform by between 25-42%.

The report suggests the alleged overreporting appears to stem from the conflation of "Daily Active Users" (DAUs) with unique individuals.

The Report’s authors said Roblox's own disclosures indicate that DAUs can include multiple accounts controlled by a single user, such as alternate or bot accounts.

Roblox refuted suggestions it is pumping its numbers: “Because DAUs measure account activity and an individual user may actively use our platform within a particular day on multiple accounts for which that individual registered, our DAUs are not a measure of unique individuals accessing Roblox,” the company said.

“Additionally, if undetected, fraud and unauthorised access to our platform may contribute, from time to time, to an overstatement of DAUs. In many cases, fraudulent accounts are created by bots to inflate user activity for a particular developer’s content on our platform, thus making the developer’s experience (which refers to the titles that have been created by developers) or other content appear more popular than it really is. We strive to detect and minimise fraud and unauthorised access to our platform.”

Hindenburg Research also claimed to have uncovered evidence of two separate accounting practices within Roblox: one for internal business decisions where multiple accounts are identified, and another that reports higher user metrics to investors. A former but un-named data scientist cited in the report estimated that if DAUs were accurately de-altered, the actual numbers could be 20-30 percent lower.

Child safety

In addition to these financial discrepancies, the report raised alarming concerns about the content on Roblox, which it described as a "paedophile hellscape."

Investigative findings revealed that users, including children, are exposed to grooming, pornography, violent content, and abusive speech. The platform's lack of robust age verification measures has reportedly allowed predators to exploit its social features to target minors.

“Beyond inflated key user metrics, our in-game research revealed an X-rated paedophile hellscape, exposing children to grooming, pornography, violent content, and extremely abusive speech,” the Report said.

Among the specific examples, Hindenburg said:

• IT tracked some of the members of “Adult Studios” and easily found 38 Roblox groups –one with 103,000 members – openly soliciting sexual favours and trading child pornography.
• 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.
• Registered as a child, its researchers were able to access games like “Escape to Epstein Island” and “Diddy Party”. “We found over 600 “Diddy” games, including “Survive Diddy” and “Run From Diddy Simulator” in a hat tip to the allegations against US musician Sean ‘Diddy’ Combs who was arrested for sex trafficking last month.
• Since September 2nd, 2024, third-party monitor ‘Moderation For Dummies’ has reported ~12,400 erotic roleplay accounts on Roblox. These include everything from “rape/forceful sex fetishes” to underage users “willing to do anything for Roblox”.
• Users seeking sexual experiences on Roblox are “so pervasive that there are thousands of Roblox sex videos on porn sites, inviting users of unknown ages to make explicit content on the platform”.
• Despite the company’s mission “to connect a billion users with optimism and civility”, the authors found games such as “Beat Up Homeless Outside 7/11 Simulator”, which had 1 million visits

The report highlighted numerous instances where accounts linked to notorious pedophiles were found on Roblox, with usernames reflecting their criminal backgrounds still active on the platform.

Despite Roblox's claims of stringent content moderation, the report claims “Moderators [are] being paid $12 a day to review countless instances of child grooming and bullying with a limited ability to keep perpetrators off the platform permanently.”

Additional reporting by Andrew Birmingham