Investing.com -- Roblox stock tumbled more than 9% in premarket Tuesday following a scathing short report from Hindenburg Research.
The report criticizes the online gaming platform for inflated user metrics, persistent losses, and serious safety concerns regarding child users.
Hindenburg's report points out that Roblox has not turned a profit since going public, with losses totaling $1.07 billion over the last twelve months.
Despite the company's market valuation of approximately $27 billion, Hindenburg highlights that Roblox's stock trades at 8.6 times sales, significantly above its gaming peers.
This pricing, the short seller argues, reflects unrealistic expectations for future growth and profitability.
The short seller alleges that Roblox has consistently misled investors about the number of users on its platform.
"Our research indicates that Roblox is lying to investors, regulators, and advertisers about the number of 'people' on its platform, inflating the key metric by 25-42%+," writes Hindenburg. "We also show how engagement hours, another key metric, is inflated by an estimated 100%+."
Hindenburg also claims that the platform's reported Daily Active Users (DAUs) are misleading, as they may include multiple accounts operated by single users.
"If that number [DAUs] is not de-alted, I think the actual one would be like anywhere between 30 to 20 percent lower," Hindenburg said a former data scientist told them.
The report also raises alarming safety concerns, alleging that Roblox's moderation systems are inadequate, leading to the exposure of children to inappropriate content and predatory behavior.
Hindenburg stated, "Roblox has adopted the Silicon Valley approach of 'growth at all costs', whether by misleading or outright lying to investors about its key metrics or by opening its platform to dangerous predators and illicit content unsuitable for children."
Following its findings, Hindenburg Research said it has initiated a short position in Roblox.