Roblox shares fall after short seller Hindenburg accuses platform of ‘lying to investors’

Hindenburg Research revealed a short position in Roblox on Tuesday, claiming the gaming platform popular among young children grew metrics including user numbers and engagement.

Shares of Roblox fell as much as 9% after the short seller said the company confused daily active users (DAU) with the number of people visiting its platform.

The stock recently fell 3% to $40.06.

This was based on its definition that the metric is not a measure of “unique individuals accessing Roblox,” Hindenburg said, adding that DAUs can include bots or alternate accounts.

A spokesperson for Roblox denied the allegations.

It is the latest target of Hindenburg, whose reports have sent shares of companies owned by billionaire investor Carl Icahn and India’s Gautam Adani tumbling, as well as AI server maker Super Micro Computer.

“Roblox is lying to investors, regulators and advertisers about the number of ‘people’ on its platform, inflating key metrics by 25-42%+,” Hindenburg said.

The short seller said he’s also found numerous cases of bots from different countries using alternate accounts to “farm” in-game goods on Roblox.

The platform promotes games that don’t need active participation from users and artificially boosts engagement by tying developer payments to it, the short seller said.

Unlike traditional video game companies, Roblox relies on user-generated content to drive engagement and makes most of its money from in-game spending on its virtual currency, Robux.

The company raised its annual bookings forecast in August as it benefits from strong spending on the various games available on the platform. It had 79.5 million DAUs as of June 30.

“There are a lot of interesting points in that report, but they seem to misunderstand a lot about how games work,” said Wedbush Securities analyst Michael Pachter.

He said Hindenburg measured engagement based on a “session,” but players typically log in and out several times a day and play more than one game.

“The Hindenburg test looks like it measured the length of a single game session for each user,” Pachter said.