Hindenburg shorts gaming giant Roblox, alleges up to 42% inflated key metrics; shares plunge over 2%

US-based short seller Hindenburg Research released a report on the gaming giant Roblox Corporation, alleging that the company has inflated its key metrics for Wall Street, the short seller said in its report titled ‘Roblox: Inflated Key Metrics For Wall Street And A Pedophile Hellscape For Kids’, released on Tuesday, October 8.

Hindenburg Research has taken a short position on Roblox's stock, according to the short seller's post on the social media platform X. The company also posted a disclaimer with its short position declaration.

What is Hindenburg's claim?

The San Mateo-based, $27-billion gaming company has reported losses every quarter since it decided to hit Wall Street. Roblox's losses totalled $1.07 billion, claimed Hindenburg in its report.

“Our research indicates that Roblox is lying to investors, regulators, and advertisers about the number of “people” on its platform, inflating the key metric by 25-42%+. We also show how engagement hours, another key metric, is inflated by an estimated 100%+,” alleged the short seller in its report released on Tuesday.

In addition to claiming that the company is inflating the number of “people” on its platform, Hindenburg's report also claimed that they suspect the company is inflating a second key metric, “engagement hours.” According to the short seller's report, the company reported an extraordinary 2.4 average hours of engagement per day per user in 2023.

The claimed level of engagement is 58% higher than the average time spent by US 8 to 12-year-olds playing all mobile games (including tablet), according to a 2021 survey, and 26%-166% more time than leading social media platforms such as YouTube, TikTok and Instagram, alleged the report.

Hindenburg also claimed insiders have sold $1.7 billion in stock since the company’s listing in 2021. In the past year, insiders have sold $150 million in stock which involves

In the last 12 months, insiders have sold around $150 million in stock, including $115 million by Roblox's Chief Executive Officer (CEO) David Baszucki, said Hindenburg in its platform X post.

The short seller's report also claimed that Roblox users, children, are getting exposed to adult content, “openly trading child pornography and soliciting sexual acts from minors,” according to the research report.

“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,” said Hindenburg in its report.

What happened to Roblox shares?

Roblox's shares in New York fell nearly 2.13% to $40.51 on Tuesday after Hindenburg Research said that they are taking a short position on the gaming giant's stock. In the after market hours, Roblox stock rose 0.22% to $40.60.

“We are short shares of $RBLX,” said Hindenburg in its platform X post. 

Roblox's stock fell as much as 9.4% in intraday trading Tuesday in New York, hitting the lowest level since early August. The online gaming company’s stock has shed more than 15% so far this year, Bloomberg reported.