Roblox shares plunge after Hindenburg says platform is 'lying to investors'

Hindenburg Research announced a short position in Roblox on Tuesday, claiming that the gaming platform popular with young children had inflated metrics such as user numbers and engagement.

Roblox shares fell as much as 9% after the short seller said the company confused daily active users (DAUs) with the number of visitors to its platform.

The stock recently fell 3% to $40.06.

This was based on its definition that the metric is not a measure of “individuals accessing Roblox,” Hindenburg said, adding that DAUs could include bots or alternative accounts.

A Roblox spokesperson denied the allegations.

It is the latest target of Hindenburg, whose reports have sent stocks crashing in companies owned by billionaire investor Carl Icahn and India's Gautam Adani, as well as AI server maker Super Micro Computer.

“Roblox lies to investors, regulators and advertisers about the number of ‘people’ on its platform, inflating the key metric by 25-42%+,” Hindenburg said.

The short seller said he also found several cases of bots from different countries using alternative accounts to “farm” goods in games on Roblox.

The platform promotes games that don't require active user participation and artificially boosts engagement by tying developer payouts to them, the short seller said.

Unlike traditional video game companies, Roblox relies on user-generated content to drive engagement and makes most of its money from in-game spending on its virtual currency, Robux.

The company raised its annual booking forecast in August as it benefits from high spending on the various games available on the platform. As of June 30, it had 79.5 million DAUs.

“There are a lot of interesting points in this report, but they often seem to misunderstand how games work,” said Michael Pachter, an analyst at Wedbush Securities.

He said Hindenburg measured engagement based on a “session,” but players typically log in and out multiple times a day and play more than one game.

“The Hindenburg test appears to have measured session length for a single game for each user,” Pachter said.