The 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. 

Hindenburg said in its report that Roblox has inflated key metrics and alleged that it doesn’t have sufficient safety screens to prevent pedophiles from using the platform. 

“We totally reject the claims made in the report,” a Roblox spokesperson said in a statement. “The authors are, admittedly short sellers (and have an agenda irrespective of the substance of Roblox’s business model and results).”

Roblox’s share price is strongly associated with user growth and engagement. Over the last few years, the platform has seen massive growth, with Chief Executive Officer Dave Baszucki now aiming for a goal of 1 billion daily active users. Currently, Roblox reports 80 million users logging onto the platform every day. 

Hindenburg’s report accuses the company of inflating both the number of users who regularly play Roblox games and the amount of time they spend on average on the platform.

Roblox users may create alternative accounts or use bots to enhance their gameplay, the research firm noted. In some instances, one user might operate ten or 100 alternative accounts. Hindenburg claims that Roblox’s key metrics are inflated by these secondary accounts, which are currently counted as singular users.

For the study, Hindenburg said it hired a technical consultant to monitor the top 7,200 Roblox games. The resulting review of 30.4 million unique daily users, according to Hindenburg, found that they spent approximately 22 minutes a day playing the games – significantly less than the 2.4 hours of average daily engagement that Roblox reported for the year 2023.

“Further analysis of play times showed numerous games in which obvious bot accounts remained in-game for more than 24 hours straight,” the report noted. “Our representative sample flagged millions of ‘zombie’ engagement hours that can majorly skew Roblox’s reported ‘average’ engagement.”

Over the past four quarters, Roblox’s bookings, or the amount of cash receipts, have grown more than 22% to $955.2 million in the second quarter of 2024 from $780.7 million a year earlier, according to the company. During the same time, the company generated $576 million of free cash flow. Those metrics are themes Roblox has focused on consistently with investors since it was a private company, according to the spokesperson.  

“We firmly believe that Roblox is a safe and secure platform and in the financial metrics we report,” the spokesperson said.

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On user safety, the report cites a recent Bloomberg Businessweek investigation into predatory behavior on Roblox that was based on interviews with more than 20 current and former employees.

Since 2018, police in the US have arrested at least two dozen people accused of abusing or abducting kids they met or groomed via Roblox, according to data compiled by Bloomberg. Police reports, obtained through the Freedom of Information Act, show predators luring children into sending naked photos by offering to pay them Robux, the platform’s virtual in-game currency.

One Roblox moderator, who requested anonymity for fear of retaliation from the company, said her team receives hundreds of escalated reports involving child safety every day, far too many for the team to clear.

Most of the safety workers interviewed by Bloomberg Businessweek said it was harder to pursue pedophiles at Roblox than at other online platforms, in part, because the company allows users to create an account without entering any real names, email addresses or phone numbers. 

Hindenburg’s report raised concerns with the lack of screening upon sign-up. The researchers created multiple fake accounts as children and found they were quickly exposed to sexual content, including images of male genitalia.

Roblox has been the target of multiple cautious reports from the Bear Cave, a financial newsletter that caters to the short-selling community. Edwin Dorsey, who runs the site, first published a contrarian report about the gaming platform in 2022. Dorsey said he doesn’t take positions against companies profiled in the newsletter.

“Roblox’s partnerships with big brands including Walmart, L’Oreal and Nike alleviate our concerns about brand safety but it may still need to invest in parent controls and cleaning up bots,” Bloomberg Intelligence Senior Industry Analyst Mandeep Singh wrote Tuesday.

(Updates with additional context and analysis starting in the fifth paragraph)