Roblox: Inflated Key Metrics For Wall Street And A Pedophile Hellscape For Kids – Hindenburg Research

Hindenburg Research is short shares of Roblox Corporation (NYSE:RBLX).

• Roblox is a $27 billion online gaming platform headquartered in San Mateo, CA. The company was incorporated in 2004 and is led by founder and CEO David Baszucki.
• The company has reported net losses every quarter since becoming a public company, with last twelve months (LTM) losses totaling $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.
• Insiders have cashed out $1.7 billion in stock since the company’s 2021 direct listing. In the last 12 months, insiders have sold ~$150 million in stock, including ~$115 million by CEO Baszucki personally.
• Since Roblox isn’t profitable, its stock price (and, in turn, insiders’ ability to dump hundreds of millions of dollars of stock) is reliant on the growth metrics it presents to Wall Street.
• 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%+.
• 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”.
• Our 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.
• Given these definitions, we believe Roblox intentionally conflates “people” with DAUs, consistently inflating the reported number of people on its platform.
• In 2023, Roblox told the SEC it is “unable to identify if a user has multiple accounts”. The company’s response to the SEC appears to be a flat out lie.
• Multiple former employees told us that Roblox does internally track single users with multiple accounts, referring to the process as ‘de-alting’.
• Interviews reveal Roblox effectively has two sets of books for counting users: one for internal business decisions, in which multiple accounts are ‘de-alted’, and one used by the finance team that reports higher metrics to investors.
• “If that number [DAUs] is not de-alted, I think the actual one would be like anywhere between 30 to 20 percent lower”, a former data scientist told us.
• Roblox forums detail how users regularly have dozens of alternate accounts to “farm” for goods on Roblox, avert bans and increase their follower counts, among other reasons.
• In addition to alternate accounts, bots are rampant on the platform. For example, Roblox’s 7^th most popular game, Adopt Me!, has garnered over 83,000 Change.org signatures to remove it from the platform due to extensive “botting” that “breaks” Roblox.
• Roblox’s 2^nd most visited game, Blox Fruits, was dominated by traffic from Vietnam, where we found numerous Facebook groups, including 5 with 50,000 to 117,000 members each, advertising and soliciting tools to run 20+ Roblox bot tabs at a time.
• A former data scientist told us that activity in Vietnam “inflated a lot of our numbers. Like crazy, insane, in terms of engagement, DAU[s]”.
• In addition to inflating the reported number of “people” on its platform, we also suspect Roblox massively inflates a second key metric, “engagement hours”. The company reported an extraordinary 2.4 average hours of engagement per day per user in 2023.
• This level of engagement is 58% higher than the average time spent by U.S. 8-12 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.
• To better understand the company’s reported engagement, we hired a technical consultant that monitored the top ~7,200 Roblox games across ~2.1 million Roblox servers, collecting 297.7 million rows of real-time player data.
• The data suggests that Roblox could be massively overstating the true level of user engagement across its platform: our review of an average of 30.4 million unique daily users found they spent just ~22 minutes in games per day.
• Further analysis of play times showed numerous games in which obvious bot accounts remained in-game for more than 24 hours straight. Our representative sample flagged millions of ‘zombie’ engagement hours that can majorly skew Roblox’s reported “average” engagement.
• Roblox incentivizes developers to create ‘AFK’ (Away From Keyboard) games that artificially inflate engagement by tying developer pay in part to engagement. Web forums detail developer strategies for creating features that encourage bots and zombie engagement.
• We think Roblox can and should report its estimated de-alted and de-botted metrics so that investors, advertisers, and regulators can be better informed about the actual number of “people” on the platform, and their genuine level of engagement.
• Beyond inflated key user metrics, our 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.”
• 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.
• For example, in 2018, prior to Roblox going public, a 29-year-old was caught by police with 175 hours of video footage of him grooming and engaging in explicit behavior with 150 minors using online platforms, namely Roblox.
• 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 childrens’ safety”.
• Numerous criminal indictments from 2019-2024 allege that sexual predators groomed children in-game, ranging from 8-14 years old, then kidnapped, raped or traded sexual content with them.
• 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.
• Many were Jeffrey Epstein fan accounts, including “JeffEpsteinSupporter” which had earned multiple badges for spending time in kid’s games. Other Jeff Epstein accounts had the usernames “@igruum_minors” [I groom minors], and “@RavpeTinyK1dsJE” [rape tiny kids].
• We attempted to set up a Roblox account under the name of another notorious pedophile to see if Roblox had any up-front pedophile screening: Earl Brian Bradley was indicted on 471 charges of molesting, raping and exploiting 103 children. The username was taken, along with multiple variants like earlbrianbradley69.
• After we found a username, we listed our age as “under 13” to see if children are being exposed to adult content. By merely plugging ‘adult’ into the Roblox search bar, we found a group called “Adult Studios” with 3,334 members openly trading child pornography and soliciting sexual acts from minors.
• We tracked some of the members of “Adult Studios” and easily found 38 Roblox groups – one with 103,000 members – openly soliciting sexual favors and trading child pornography.
• The chatrooms trading in child pornography had no age restrictions. Roblox reports that 21% of its users are under the age of 9, a number that is likely underestimated given that Roblox has no age verification aside from users seeking 17+ experiences.
• Registered as a child, we were also able to access games like “Escape to Epstein Island” and “Diddy Party”. We found over 600 “Diddy” games, including “Survive Diddy” and “Run From Diddy Simulator”.
• Since September 2nd, 2024, third-party monitor ‘Moderation For Dummies’ has reported ~12,400 erotic roleplay accounts on Roblox. These include everything from “rape/forceful sex fetishes” to underage users “willing to do anything for Robux”.
• 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.
• We tested out Roblox’s experiences to see what else kids were being exposed to. We quickly encountered images of male genitalia and hate speech in Roblox’s “school simulator” game, which had registered 28.9 million visits with no age restrictions.
• Despite the company’s mission “to connect a billion users with optimism and civility”, we found games such as “Beat Up Homeless Outside 7/11 Simulator”, which had 1 million visits and 15,000 favorites before being removed from Roblox.
• Nonetheless, Roblox users identifying as 9 years old and up can still beat up homeless people in “Beat Up People Outside of 7/11” with over 900,000 visits.
• In the game “Beat Up The Pregnant”, users hacked pregnant women to death in a Wal-Mart parking lot with machetes or killed them with frying pans or a selection of guns.
• We played “[GUNS] Work at a Hospital” where users can go on a hospital shooting rampage. The game has ~1.6 million visits and remains on the platform with no age restrictions. The game’s thumbnail is a picture of a terrified pregnant woman.
• “LGBTQ+ Vibes” is a game available to all ages that has accumulated over 40.6 million visits and over 224,000 favorites. Users regularly described lewd sex acts while others used hateful slurs.
• “Palestine And Israel Hangout” allows kids of all ages to purchase bombs and knives and attack each other. This game has ~13 million visits and ~7,200 favorites and remains on the platform.
• Posing as a child in Roblox’s “therapy” experience, our therapist introduced himself as a “rapper with only one p”. We were advised to run away from home and that he would come pick us up so we could move into his basement in exchange for paying rent with our body.
• Some games seem to encourage illicit interactions, like “Public Bathroom Simulator Vibe” and “XYZ Club Vibe” with 31 million collective visits. Both are available to users who self-identify as 9+ years old, who can simulate sex in bathrooms wearing skimpy outfits.
• Other Roblox users have identified issues of simulated rape, naked users, and rampant in-game sexual harassment.
• Despite Roblox’s claims of “best in the world” content moderation, our interviews with moderators show safety was largely outsourced to Asian call centers. Moderators described being paid $12 a day to review countless instances of child grooming and bullying with a limited ability to keep perpetrators off the platform permanently.
• Compounding all of the above issues, Roblox faces saturation in its top markets like the U.S. and Europe. It is now attempting to keep the appearance of growth alive by adding loss-generating users in markets like Asia, per a former employee. Profitability has plummeted despite reporting higher user metrics.
• The conversion rate of new daily active users to paying users has been in steady decline since 2020. Roblox is now hoping to drive incremental growth by pitching advertisers that ~79.5 million “people” spend an average of 2.4 hours per day on the platform.
• As noted earlier, we suspect these metrics are wildly inflated and that the platform poses major reputational risks for advertisers. For instance, we found Instagram ads in the same school simulator game with Nazi hate speech and photos of male genitalia.
• Overall, we think Roblox has adopted the Silicon Valley approach of ‘growth at all costs’, whether by misleading or outright lying to investors about its key metrics or by opening its platform to dangerous predators and illicit content unsuitable for children.

Initial Disclosure: After extensive research, we have taken a short position in shares of Roblox Corporation (NYSE:RBLX). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.

Background: A $27 Billion NYSE-Listed Children’s Social Gaming Platform Headquartered In Silicon Valley

Roblox is a $27 billion online gaming platform headquartered in San Mateo, CA. The company was incorporated in 2004 and is led by founder and CEO David Baszucki.

Per its Q2 2024 quarterly report, Roblox had 79.5 million average daily active users (“DAUs”) in over 190 countries, across its 5.3 million “active experiences” – a term Roblox uses to describe games, social hangouts, and other events that include online concerts, sports and fashion shows.

The majority of Roblox users are children: 21% of players are under 9 years old, 21% are from 9-12 years old, 16% are between 13 and 16 years old and 41% are older than 17 years old, according to Roblox´s 2023 annual report.

Roblox’s most popular games as of this writing are Blox Fruits, a pirate adventure game, and Brookhaven, a roleplaying game where users can create their own houses and explore a city.

(Source: Roblox’s 2^nd most popular game as of October, 2024, Blox Fruits)

One draw for Roblox versus other gaming platforms is that it gives players the ability to communicate and interact with other players, adding a social dynamic.

Roblox is a “free to use” platform that generates almost all of its revenue from the sale of its self-described virtual currency called Robux, which can then be used to purchase virtual items in-game.

Robux can be purchased through app stores or under Roblox’s premium membership, and can also be traded and donated amongst users.

Users can also earn Robux by creating Roblox experiences and charging others for in-game items, enabling game developers to monetize their creations.

The U.S. is Roblox’s most lucrative market. As of the end of 2023, just 22% of Roblox´s daily active users (DAUs) were located in the U.S. or Canada, but the U.S. alone accounted for 60% of consolidated 2023 revenues.

Roblox went public on the NYSE via a direct listing on March 10^th, 2021, and has a current market capitalization of ~$27 billion.

Read the full report here by Hindenburg Research