Bombshell report claims Roblox is ‘pedophile hellscape’

The short seller, which disclosed a bet against the public company, claimed that Roblox was inflating the number of people visiting its platform by 25% to 42% and possibly overstating the number of engagement hours users spent on the site by more than double. Roblox’s stock closed down 2.13% following the news at about $40.51 on Tuesday afternoon.

In a 2022 quarterly earnings report, Roblox claimed that 54.1 million “people” visited its website daily to create their own games or play those made by others. Yet, Hindenburg claims Roblox equated “people” to the much more nuanced “daily active users” figure, which can include bots and people with multiple accounts.

By Roblox’s own disclosures, daily active users “are not a measure of unique individuals accessing Roblox,” the short seller wrote in a Tuesday report. Former employees told the short seller that the company essentially has two figures for users, one for internal use that filters out bots and multiple accounts tied to one person, and another for external publication that overstates user numbers by including these elements. 

Hindenburg also said Roblox could be exaggerating its “engagement hours” figure. A consultant’s review of an average of 30.4 million daily users for Hindenburg found that users spent about 22 minutes per day in games. Meanwhile, as recently as 2023, the company reported an average of 2.4 hours of engagement time per day per user.

“We totally reject the claims made in the report. The financial claims made by Hindenburg Research are simply misleading. The authors are, admittedly short sellers and have an agenda irrespective of the substance of Roblox’s business model and results,” a Roblox spokesperson said in a statement to Fortune.

Another claim by the short seller was that underage users are being broadly targeted in what amounts to “a pedophile hellscape for kids.” The authors allege the website’s social media features, “allow pedophiles to efficiently target hundreds of children, with no up-front screening to prevent them from joining the platform.” 

The authors found 38 groups on the platform where users traded child pornography and solicited sexual favors, according to the report. Several other inappropriate games and experiences tied to convicted sex trafficker Jeffrey Epstein and accused sex trafficker Sean “Diddy” Combs were also available to the authors, even when they created an account listing their age as under 13. The website’s safety monitoring is mostly outsourced to employees in Asia who are paid $12 a day and limited in what they can do to permanently ban offending users, the short seller claimed.

“We think 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,” Hindenburg wrote in the report.

On top of the allegations of inflating user metrics and lacking protections for underage users, Hindenburg claimed that the company’s profitability has plummeted and it is trying to keep up the appearance of growth by expanding to Asia, even though those users are less lucrative than those in the U.S. and Europe. 

Roblox said in a statement to Fortune that its cash receipts have grown by 22% from the second quarter in 2023 to this year’s second quarter and it has guided to higher numbers for its fiscal 2024.

“We firmly believe that Roblox is a safe and secure platform and in the financial metrics we report,” a Roblox spokesperson said.