Hindenburg Research disclosed a short position in Roblox on Tuesday, alleging that the gaming platform popular among young children was inflating metrics such as user numbers and engagement.
Roblox stock fell as much as 9% after short sellers claimed the company was confusing daily active users (DAUs) with the number of platform visitors.
The stock recently fell 3% to $40.06.
This is based on the definition that this metric is not a measure of “unique individuals accessing Roblox.” Hindenburg saidadded that DAU could include bots and alternative accounts.
A Roblox spokesperson denied the allegations.
This is Hindenburg's latest target, with his report listing companies owned by billionaire investor Carl Icahn and India's Gautam Adani, as well as AI server maker Super Micro Computer. stocks are also plummeting.
“Roblox lies to investors, regulators, and advertisers about the number of 'people' on its platform, inflating key metrics by more than 25% to 42%,” Hindenburg said.
Short sellers said they have also discovered multiple instances of bots from various countries using alternate accounts to “farm” goods in games on Roblox.
The platform promotes games that don't require active user participation and artificially inflates engagement by tying developer payments to it, short sellers said.
Unlike traditional video game companies, Roblox relies on user-generated content to drive engagement and derives most of its revenue from in-game spending on the virtual currency Robux.
The company raised its annual reservations forecast in August, benefiting from strong spending on the variety of games available on the platform. As of June 30, DAU was 79.5 million.
“There's a lot of interesting things in that report, but there seems to be a lot of misunderstanding about how the game works,” said Michael Pachter, an analyst at Wedbush Securities.
He said Hindenburg measured engagement based on “sessions,” but gamers typically log on and off multiple times a day and play multiple games.
“The Hindenburg test appears to have measured the duration of a single game session for each user,” Pachter said.
