Roblox’s Hindenburg moment
Will a scathing report crash its valuation?
The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.
I was going to write about my observations from last week at Unreal Fest and the Bitkraft Summit, but then everything went sideways. So I owe you that for later.
Instead, someone tried to steer Roblox into the ground.
On to this week’s update.
BIG READ: Roblox’s Hindenburg moment
This week, financial research firm Hindenburg published a comprehensive report on Roblox, triggering a drop in the company's share price. Hindenburg, notorious for short-selling, profits from declines in publicly traded companies, and lends its name from the 1937 crash of the Hindenburg airship.
The report is extensive. Its investigation of Roblox includes interviews with former employees, analyses of Roblox’s platform data, first-hand experimentation of simultaneously running fake accounts, baiting sexual predators, a survey of online discussions among users, web traffic patterns for popular Roblox experiences, instructional videos on how to ‘hack’ the game on YouTube, and financial statements. The rigor is convincing and exhaustive. But does it identify a weakness in Roblox’s fundamentals like an inflated user count and lack of child safety protections?
The researchers make several notable claims. First, they argue that Roblox has consistently and deliberately overstated its daily active user count. The investigation presents a detailed assessment of the time spent, arriving at 22 minutes of average playtime per user, compared to the publicly reported figure of 144 minutes according to Roblox’s financials. Hindenburg further contextualizes these numbers by comparing them to a recent Gallup survey that shows the time spent on major social media platforms.
At first sight, the methodology appears credible, implying that Roblox hasn’t just been overstating its numbers, but is hugely inflating them. That seems rather excessive for a firm that is as heavily scrutinized and, I should add, has been notably forth-coming with its data and metrics. Unlike most of its peers, Roblox reported detailed user data for years, which doesn’t rhyme well with a firm that is actively defrauding investors.
Hindenburg nevertheless offers a somewhat glib generalization that, in the absence of short-term financial results, tech firms tend to brag and overstate their performance. Sounds like old money talking to new money. But despite the tone, it raises a fair point. As is the case with any platform economy, improved transparency by de-duping accounts gives a clearer idea of a firm’s performance.
Next, Hindenburg claims the platform is an unsafe environment for children. It argues that Roblox offers inadequate protections against sexual predators and inappropriate content. That’s a big problem. And I’m sure that Roblox is well aware of the issue. Hindenburg argues that privacy and parental controls are ineffective and easily bypassed. According to an interview with a former moderator, grooming accounts for one in five complaints received by Roblox’s (overseas) call centers. That’s pretty damning. What would be helpful in this context is a sense of scale (e.g., how many complaints?) and a better sense of the scope of Roblox’s moderation effort. Let me take care of that for you.
