Roblox Is Playing Dumb About the Bots and Predators on Its Platform, Hindenburg Research Says

Roblox has been targeted by short-selling firm Hindenburg Research over allegations that the company inflates the number of real humans on its platform and has not gone far enough to protect children against predators. 

Being targeted by Hindenburg is less than ideal. The firm is famous for revealing in 2020 that the EV startup Nikola faked a demonstration of its flagship hydrogen-powered truck. Nikola was forced to pay investors $125 million and founder Trevor Milton was eventually charged with defrauding investors and sentenced in 2023 to serve four years in prison.

In its latest short-selling report, Hindenburg says Roblox is dishonest about its daily. active user count and has different internal numbers than what it provides to public investors. Multiple former Roblox employees Hindenburg spoke with said that the company can track players who have multiple accounts, even though it told the SEC in 2023 that it could not do so. Tech companies are given large valuation multiples based on the expectation that they’re high-growth companies. Hindenburg agrues that Roblox may be big but is not as high-growth as it appears. 

Roblox’s stock is down about 3.5 percent today, nothing terribly crazy. The company has unsurprisingly come out strong against the report, telling Bloomberg it “totally rejects” the claims and accused them of having an agenda since they will, after all, make money only if Roblox’s stock price falls.

Players will create multiple accounts for a variety of reasons, such as to evade bans. But Hindenburg’s report focuses more on Roblox’s system for paying developers of games on the platform. Anyone who builds a game on Roblox can earn money when players, for instance, buy in-game items using Robux. Crucially, users can also earn “engagement-based payouts (EBP).” Hindenburg says it found Facebook Groups out of Vietnam and elsewhere advertising tools to run Roblox bot farms that help developers juice their EBP payouts. 

“Roblox incentivizes developers to create ‘AFK’ (Away From Keyboard) games that artificially inflate engagement by tying developer pay in part to engagement,” the report says. “Web forums detail developer strategies for creating features that encourage bots and zombie engagement.” One former data scientist at Roblox told Hindenburg that it believed its daily active users could be 20-30 percent lower if not counting instances of users holding multiple accounts. 

The allegations are similar to those Elon Musk made about Twitter at the time of his acquisition—that Twitter was overrun with porn bots shilling OnlyFans content and that the company could offer accurate numbers to investors if it wanted to (and should charge him less to buy the company). Somewhat ironically, Musk’s decision to offer revenue sharing on X itself created perverse incentives to produce sensational misinformation and other inauthentic slop.

The allegations related to child safety on Roblox are more serious, but not new. As recently as July, Bloomberg published a lengthy expose detailing instances of adults grooming children through the platform, including one instance in which a man paid for an Uber to bring her to his home across state lines. For a platform that sees 50,000 chat messages sent every second, Roblox has just 3,000 moderators tasked with scanning user content. It also relies on AI, but as Hindenburg found, the platform recently had hundreds of active accounts under different variations of the name Jeffrey Epstein. 

Roblox is perhaps the first truly successful metaverse product where adolescents can hang out with friends and socialize digitally in an ostensibly safe environment. But the company has an incentive to not make the experience too restrictive or add too much friction to the account creation process. And as Bloomberg noted in its July investigation, online platforms can’t ask children for real names or other identifying info. That conundrum makes it inherently harder to identify and pursue predators, though Roblox claims it’s always getting better at doing so. Hindenburg noted that Roblox’s spending on trust and safety has declined 2 percent year-over-year, perhaps because of a reliance on AI. 

Hindenburg has an impressive track record of successfully targeting big-name companies, ranging from the Indian conglomerate Adani Group to Chicken Soup for the Soul, the owner of Redbox. The short-selling world in general has not fared so well in recent years, however. The 2021 meme stock craze saw short-sellers lose billions and one even shut down in the case of Melvin Capital. Andrew Left, who exited his GameStop short at a loss, was charged in July with market manipulation. Elon Musk has long been a crusader against short sellers who targeted Tesla for years. 

Short sellers have never been well-liked because they effectively earn money from companies that fail, and critics believe they sensationalize claims because of their financial incentive. Proponents argue they’re the stock market’s self-correcting mechanism when companies are mispriced, and that they’re actually doing other investors a favor by finding a more accurate price.