Hindenburg shorts gaming site Roblox, an ‘X-rated pedophile hellscape’

Hindenburg Research has released a new report on its website that claims the US-based online gaming platform Roblox Corporation, which is popular among children, is an “X-rated pedophile hellscape, exposing children to grooming, pornography, violent content and extremely abusive speech”. Hindenburg also said Roblox had falsified data and showed an inflated number of users to investors, regulators and advertisers.

Shares of Roblox, a gaming platform popular among children, plummeted by nearly 9 per cent in pre-market trade following the allegations on October 8.

ROBLOX A ‘PEDOPHILE HELLSCAPE’

The Squirrels accessed the Hindenburg report that said their “in-game research revealed an X-rated pedophile hellscape, exposing children to grooming, pornography, violent content and extremely abusive speech”.

“Roblox is compromising child safety in order to report growth to investors, per our interview with a former senior product designer: ‘If you’re limiting users’ engagement, it’s hurting your metrics… in a lot of cases, the leadership doesn’t want that’,” the report said, adding: “For the second quarter of 2024, in a push toward profitability, Roblox reported a 2% year-over-year decline in its trust and safety expenses.”

“Core to the problem is that Roblox’s social media features allow pedophiles to efficiently target hundreds of children, with no up-front screening to prevent them from joining the platform,” the report said.

“Media and non-profit exposés from 2020 to July 2024 revealed digital strip clubs, red light districts, sex parties and child predators lurking on Roblox. The National Center on Sexual Exploitation in 2024 labeled Roblox ‘a tool for sexual predators, a threat for children’s safety’,” said the report by the US-based investigative firm, Hindenburg Research.

“Following years of scandals, we performed our own checks to see if the platform had cleaned up its act. As a test, we attempted to set up an account under the name ‘Jeffrey Epstein’… only to see the name was taken, along with 900+ variations,” the report said.

‘INFLATING NUMBERS’ TO WOO INVESTORS

Hindenburg added that Roblox had inflated number of users for investors, regulators and advertisers.
The gaming platform, Hindenburg said, combined the number of people on the platform with daily active users (DAU) count to show fabricated numbers. Hindenburg pointed out DAUs could include bots and alternate accounts of the same users, and the figures do not necessarily reflect the number of “unique individuals accessing Roblox”.

“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%+,” the report said.

“Since prior to going public, Roblox has reported the number of ‘people’ on its platform in dozens of official investor communications. Among many examples, Roblox wrote in a 2022 quarterly report, ‘there are over 54.1 million people coming to Roblox every day’,” the Hindenburg report continued.

Hindenburg further stated that their findings show that the company’s reported number of “people” regularly matches Roblox’s reported Daily Active Users (DAUs).

“But DAUs, according to Roblox’s own disclosures, ‘are not a measure of unique individuals accessing Roblox’ because they can include numerous accounts run by a single person, such as alternate or bot accounts,” Hindenburg said.

“Given these definitions, we believe Roblox intentionally conflates ‘people’ with DAUs, consistently inflating the reported number of people on its platform,” the Hindenburg Research report said, adding: “Multiple former employees told us that Roblox does internally track single users with multiple accounts, referring to the process as ‘de-alting’.”

Roblox is a $27 billion online gaming platform headquartered in San Mateo, California, that “has reported net losses every quarter since becoming a public company, with last twelve months (LTM) losses totalling $1.07 billion. Its stock trades at 8.6x sales, a 57% premium to gaming peers, pricing in expectations of rapid future growth and profitability”, the Hindenburg report revealed.

“Insiders have cashed out $1.7 billion in stock since the company’s 2021 direct listing,” Hindenburg said about Roblox’s current financial situation, adding that in the last 12 months, insiders have sold approximately “150 million in stock”, including approximately “$115 million by CEO Baszucki personally”.

Since Roblox is not making profits, the company’s stock price and, consequently, insiders’ ability to dump stock worth hundreds of millions of dollars, wholly rests on the statistics it presents to investors, regulators and advertisers, according to the report.

NOT THE FIRST SALVO

This is not the first time Hindenburg have taken on big business. In 2023, the firm notably published a damaging 32,000-word report that contained 720 citations and ran into 106 pages, alleging the Adani Group of India had rampantly manipulated stocks and engaged in accounting fraud for decades. Consequently, Adani stocks witnessed a $150-billion fall.

On July 2 this year, the Securities and Exchange Board of India (SEBI) issued a showcause notice against Hindenburg Research alleging the US-based firm had violated rules while placing bets on Adani Group stocks. SEBI had also said that the foreign portfolio investor Kingdon Capital Management LLC had indirectly aided Hindenburg Research to target Adani Enterprises Limited.

Hindenburg had reacted stating SEBI’s showcause notice was “nonsense”, and added that it was “concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India”.