Topline
Influential short seller Hindenburg Research revealed Tuesday it took a short position against kids-oriented video game platform Roblox, accusing the company of inflating key metrics of user engagement and of inadequately protecting children from disturbing content, causing Roblox’s share price to tumble.
Roblox went public in 2021, and had a roughly $25 billion market value as of Tuesday, about a third … [+]
Key Facts
Hindenburg, the investment research firm known for making short bets against public companies which profit if the company’s share price plummets, outlined a host of allegations against Roblox in its more than 15,000-word report, largely centered around allegations of manipulated user data and insufficient child safety safeguards.
Roblox, which is an amalgamation of millions of user-created games and is arguably as much a social media company as a gaming one due to its community nature, “massively inflates” user activity metrics such as time on the platform and daily active users, an issue for investors as user engagement and total user base is considered among the most important metrics for social media companies.
More shockingly, Hindenburg accused Roblox of allowing an “X-rated pedophile hellscape” as the firm discovered “requests to trade child pornography and engage in sexual roleplay fantasies with children” on the site.
Shares of Roblox fell 9.4% at market open, hitting an 8-week low share price of $37.51, though it recovered to a roughly 6% daily loss by 10 a.m. EDT.
Roblox did not immediately respond to an inquiry and has yet to make a public statement Tuesday—Forbes will update this story if they respond.
Tangent
Several disturbing games on Roblox were accessed by Hindenburg with a child-registered account, including the “Escape to Epstein Island” and the “Run From Diddy Simulator,” referring to convicted sex offender Jeffrey Epstein and Sean “Diddy” Combs, who is in federal prison awaiting trial for a litany of alleged sex crimes.
Key Background
Hindenburg short positions often cause stock drops on the day of their release, and the company has targeted firms such as Cash App parent Block, Hydrogen car firm Nikola and Indian mogul Gautam Adani’s Adani Group in prior reports. The California-based Roblox was cofounded in 2004 by its CEO David Baszucki, who is worth $2.5 billion as of Forbes’ latest estimates, though Bascucki’s fortune fell about $150 million Tuesday. Roblox went public in 2021, and had a roughly $25 billion market value as of Tuesday, about a third of its peak valuation of more than $75 billion in late 2021 as its share price faded alongside other “pandemic darling” stocks.
