Investing.com – Roblox shares fell more than 9% in premarket trading on Tuesday following a scathing brief report from Hindenburg Research.
The report criticizes the online gaming platform for inflated user metrics, persistent losses, and serious safety concerns regarding child users.
Hindenburg’s report notes that Roblox has not made a profit since going public, with losses totaling $1.07 billion over the past twelve months.
Despite the company’s market valuation of approximately $27 billion, Hindenburg notes that Roblox stock trades at 8.6 times sales, significantly above its gaming peers.
This price, the short seller argues, reflects unrealistic expectations of future growth and profitability.
The short seller alleges that Roblox has consistently misled investors about the number of users on its platform.
“Our investigation indicates that Roblox is lying to investors, regulators, and advertisers about the number of ‘people’ on its platform, inflating the key metric by 25% to 42%+,” Hindenburg writes. “We also showed how engagement hours, another key metric, are inflated by approximately 100% more.”
Hindenburg also claims that the daily active users (DAU) reported by the platform are misleading as they may include multiple accounts operated by single users.
“If that number [DAUs] is not removed, I think the current one would be 30 to 20 percent lower,” Hindenburg said a former data scientist told them.
The report also raises alarming safety concerns, alleging that Roblox’s moderation systems are inadequate, leading to children’s exposure to inappropriate content and predatory behavior.
Hindenburg stated: “Roblox has adopted the Silicon Valley approach of ‘growth at all costs,’ whether by outright misleading or lying to investors about its key metrics or opening its platform to dangerous predators and illicit content not suitable for children.”
Following its findings, Hindenburg Research said it had initiated a short position in Roblox.