Roblox Fails to Address Issue of Automated Programs and Potential Predators on Its Network, Accuses Hindenburg Research
In the gaming world, Roblox has found itself under fire from short-selling firm Hindenburg Research, who allege that the platform inflates its user count and isn’t doing enough to safeguard kids against predators.
Hindenburg made a name for itself in 2020 when it exposed Nikola for faking a demonstration of its hydrogen-powered truck, leading to a $125 million payment to investors and Trevor Milton's four-year prison sentence in 2023 for defrauding investors.
Notably, Hindenburg has targeted various businesses like teeth straightening startup SmileDirectClub, payments firm Block (previously Square), and Chicken Soup for the Soul, the owner of Redbox.
In its latest report, Hindenburg accuses Roblox of lying about its daily active user count and relying on internal numbers different from those shared with public investors. Several former Roblox employees corroborated these claims to Hindenburg, stating that the company tracks users with multiple accounts, contrary to their 2023 SEC statements stating they couldn’t do so.
The controversy has led to a 3.5% drop in Roblox's stock, but the company has fiercely contested the report, labeling it baseless and suggesting Hindenburg has an ulterior motive since its profits depend on Roblox's declining stock price.
In addition to the user count controversy, the report also highlights questions about the platform's payment system for game developers. Developers can earn money from in-game purchases and "engagement-based payouts (EBP)." Hindenburg claims it discovered Facebook Groups in Vietnam and elsewhere advertising tools to boost EBP payouts through bot farms.
"Roblox encourages developers to create 'AFK' (Away From Keyboard) games to inflate engagement artificially by tying developer pay to engagement," the report states. "Web forums suggest strategies for creating features that attract bots and inflate engagement." A former Roblox data scientist told Hindenburg that the daily active users could be 20-30% lower if accounts creating such engagement were eliminated.
Like Elon Musk's accusations about Twitter's porn bot issue, the allegations concerning child safety on Roblox are grave but not entirely new. Just last July, Bloomberg published an extensive investigation detailing incidents of adults grooming children on the platform, including one case where a man paid for an Uber to transport a minor girl across state lines.
For a platform handling 50,000 chat messages per second, Roblox only has 3,000 moderators to scan user content. The platform also relies on AI, but Hindenburg found hundreds of active accounts using various Jeffrey Epstein names on the platform.
Roblox, being a successful metaverse for teenagers, faces a challenge between maintaining a safe environment and not adding too much friction to the account creation process. Bloomberg's July investigation pointed out that online platforms cannot request real names or other identifying information from children, making it harder to detect and pursue predators.
Despite their notorious reputation for profiting from failed companies, short sellers like Hindenburg have struggled in recent years. The 2021 meme stock craze saw short sellers losing billions, and some, like Melvin Capital, ceased operations. Andrew Left, who abandoned his GameStop short at a loss, was charged with market manipulation in July.
Elon Musk has long been a vocal opponent of short sellers who targeted Tesla extensively. While some believe short sellers sensationalize claims due to their financial incentive, proponents argue they act as the stock market's self-correction mechanism when companies are overpriced and are ultimately helping other investors find a more accurate price.
- Hindenburg Research, known for targeting companies like Nikola in 2020, has now focused on tech giant Roblox, alleging the platform inflates its user count and may not be diligent in safeguarding children.
- The report from Hindenburg accuses Roblox of relying on internal user numbers different from those shared with public investors, a claim corroborated by several former Roblox employees.
- The controversy over Roblox's daily active user count has led to questions about its payment system for game developers, with Hindenburg claiming to have discovered strategies to boost engagement-based payouts through bot farms.
- As Roblox faces challenges in maintaining safety while minimizing friction in the account creation process, concerns about child safety, such as incidents of adults grooming children on the platform, remain inherently reliant on the tech giant's future strategies.