Shares of Roblox (RBLX) fell in trading on Tuesday after Hindenburg research disclosed a short position in the stock. The short seller alleged that the online gaming platform has inflated its number of users by 25% to 42%. Additionally, the report pointed out that engagement hours, another crucial metric for RBLX, were inflated by an estimated 100% or more.
Details of Hindenburg’s Allegations Against RBLX
According to Hindenburg, Roblox combined the number of people visiting its platform with its daily active users (DAUs). Elaborating further, the short seller pointed out that the company’s definition of DAUs does not accurately represent “unique individuals accessing Roblox.” This is because, according to Roblox, DAUs can include bots or alternate accounts, suggesting that the actual number of users may be overstated.
Hindenburg claimed to have identified multiple instances of bots from various countries that use alternate accounts to “farm” for in-game goods on Roblox. The term “farming” in the context of online gaming is the repeated act of playing the same game sequence to gather resources, materials, and equipment or to increase levels.
Roblox Responds to the Hindenburg Allegations
In response, a spokesperson for Roblox told Bloomberg, “We totally reject the claims made in the report. The authors are, admittedly, short sellers (and have an agenda irrespective of the substance of Roblox’s business model and results)…We firmly believe that Roblox is a safe and secure platform and in the financial metrics we report.”
Roblox’s Underlying Financial Metrics Are Intact
Putting aside this recent controversy, RBLX raised its annual bookings forecast in August, citing strong spending across the diverse games available on its platform. At the end of the second quarter, Roblox had 79.5 million DAUs, indicating that the platform has a significant user base.
Is RBLX a Good Stock to Buy?
Analysts remain cautiously optimistic about RBLX stock, with a Moderate Buy consensus rating based on 13 Buys, eight Holds, and one Sell. Over the past year, RBLX has increased by more than 30%, and the average RBLX price target of $45.84 implies an upside potential of 14.4% from current levels.
