#284: Lead balloon

Yesterday an outfit called Hindenburg Research released a scathing report into Roblox Corp, alleging that the company behind one of the planet’s biggest gaming platforms has for years been deliberately overstating its user metrics to hoodwink Wall Street, that executives have been selling shares before the inevitable iceberg shows up, and that a dismally lax attitude to moderation and child safety has left its audience, a majority of which is under 17 and 20% of whom are under 9, exposed to what it calls “an X-rated p[a]edophile hellscape”. I do not recommend reading the full report unless you have a particularly strong bladder; it is staggeringly long, and absolutely piss-boiling.

It should be noted that Hindenburg’s intentions here are not entirely pure. As its name implies, it is in the business of blowing up things it deems dangerously overinflated: it takes short positions in companies it suspects of foul play, publishes devastating exposés of their nefarious affairs, and cashes in. Early last year it published a similar investigation into the activities of Indian billionaire Gautam Adani. Hindenburg’s allegations of stock manipulation — which gets more ironic the more I think about it — and “sky-high” valuations wiped $100bn off the value of Adani’s companies, and Hindenburg made a little over $4m from short-selling stock in his businesses, which actually doesn’t sound like very much at all in the scheme of things, but fine. It admits in yesterday’s report that it has also taken a short position in Roblox. So, sure, perhaps a little scepticism is in order. 

But also… is it really? While there is new information here, based largely on revelations from former Roblox staffers, much of it merely restates things that those of us with our fingers on the ol’ pulse already knew about. Followers of the diligent work of People Make Games already know that the platform owes much of its success to its endemic exploitation of child labour. Roblox’s problem with sexual predators has been well documented for years, and was detailed extensively in a Bloomberg investigation a few months ago. And while the extent to which its absurd stock-market performance deviates from its real-world health has never been detailed quite so explicitly — Hindenburg claims Roblox overstates its daily-active-user numbers by as much as 40% by passing off obvious bot activity as human, and accuses it of lying to the SEC about its ability to distinguish between individual users and alt accounts — it has been self-evident for years now that something is rotten in Roblox’s crudely rendered, diddler-riddled Denmark. 

Roblox went public in 2021, and is yet to post a single quarterly profit, though admittedly this hardly makes it an outlier in today’s fabulist stock market, which can handwave away all manner of ill omens providing enough of the other line-graphs are moving up and to the right. But remarkably, Wall Street and the more brainwormed members of the Valley venturebro set appear absolutely fine with the fact that the bigger Roblox gets — the more users it acquires, and the more money it makes — the more money it somehow contrives to lose. It’s true! I’ve got data and charts and everything! 

I am, as my bank manager will gladly tell you, no financial savant. But I continue to be dumbfounded by what the so-called experts in this field consider to be a successful business. If I somehow contrived to turn a 25% payrise into a 24% greater loss, as Roblox did in 2023, I and those around me would consider me a complete failure. I would certainly be less likely to be approved for a mortgage or a loan. Yet if I were somehow able to float myself on Wall Street they’d all be queueing up for a piece of the action. What a world.

I gather these figures are also massaged; it is apparently something to do with how Roblox Corp defers revenue from sale of Robux, its virtual currency, though I think today's edition is dry enough without us trying to make sense of that. And sure, there’s a school of thought that all Roblox Corp is guilty of is successfully gaming the self-evidently broken financial system in which it operates, and that its laundry-list of flaws are merely the cost of doing its particular kind of business. Big online companies are always going to have a problem with bots and alts; UGC platforms are always going to attract bad actors and scam artists; wherever children gather, predators are sure to follow. Just the way of things, old fruit. Nothing to be done.

And indeed, the people that matter have already decided that none of this changes anything. After briefly falling by 10% yesterday, Roblox stock rebounded, ending the day just 2% down; this morning that’s been recovered too. Maybe Hindenburg, and a few others, made a few quid out of the whole endeavour, but that aside this was a bit like a sitcom episode: a bunch of stuff happened and we all ended up back where we started. Roblox has since put out a statement, lying about its commitment to child safety and poking holes in some of Hindenburg’s claims, but it all feels like keeping up appearances more than anything. They know they don’t need to actually do anything, really. This whole sorry enterprise is working exactly as it’s supposed to, and there is nothing you, or I, or Hindenburg Research can do about it. The train keeps a-rollin’ regardless.

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