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Hindenburg shorts Roblox: What are the allegations against the company?
Hindenburg Research accused Roblox of inflating user metrics, leading to a 9% drop in shares. The firm misrepresented engagement levels, the short seller said.
Hindenburg Research disclosed a short position in Roblox alleging that the gaming platform inflated metrics including user numbers and engagement. Following this, Roblox shares fell as much as 9% as the short seller said that the company conflated daily active users (DAUs) with the number of people visiting its platform. The metric is not a measure of "unique individuals accessing Roblox", Hindenburg said, adding that DAUs could include bots or alternate accounts.
Hindenburg had earlier targeted billionaire-investor Carl Icahn, India's Gautam Adani, as well as AI-server maker Super Micro Computer. Hindenburg said, "Roblox is lying to investors, regulators, and advertisers about the number of "people" on its platform, inflating the key metric by 25-42%.
The short seller alleged it has found instances of bots from different countries that use alternate accounts to "farm" for goods in games on Roblox.
What does Roblox do?
Roblox relies on user-generated content to drive engagement and makes most of its money from in-game spending on its virtual currency, Robux. In this way it is different from traditional video game companies. Roblox promotes games that do not need active participation from users and artificially inflate engagement by tying developer payouts to that, the short seller said.
The company has raised its annual bookings forecast in August due to strong in-game spending. It had 79.5 million DAUs, as of June 30.
What experts said on Hindenburg's allegations against Roblox?
Wedbush Securities analyst Michael Pachter said, “There are many interesting points in that report, but they seem to misunderstand a lot about how games work.” Hindenburg measured engagement based on a "session", but gamers usually log on and off multiple times a day and play more than one game, the expert said, adding, “The Hindenburg test looks like it measured session length for a single game for each user.”
