A New Report Alleges that Roblox Remains an “X-Rated Pedophile Hellscape,” And What This Says About the Need for Regulation
October 10, 2024
Hindenburg Research is an investment firm that places financial bets — “short sales” — that stocks will decline in connection with in-depth investigations that Hindenburg publishes about those same companies. On October 8, Hindenburg released a damning report about Roblox, the company behind the popular online game-creation platform of the same name. The report, which accuses Roblox of “massively” inflating user activity metrics to drive up its stock price, also contains horrifying details about Roblox’s woefully deficient safety measures, citing a profusion of allegations of in-game grooming, sexual exploitation, and glorification of violence. The report, which characterizes Roblox as “an X-rated pedophile hellscape” that caters to young users, sent the company’s stock price plummeting on Tuesday.
The Hindenburg report’s compilation of age-inappropriate and illegal immersive experiences is extensive and shocking even for those who are familiar with safety issues on gaming platforms. The examples range from a game called “Adult Studios,” which is devoted to trading child pornography, to one called “Palestine and Israel Hangout,” which allows players to purchase weapons and attack each other.
“Roblox rejects the claims made in the Hindenburg report,” the gaming company said in a written statement. “Safety and civility have been foundational to Roblox since the company’s inception nearly two decades ago, and the company has invested heavily throughout its history in its trust and safety efforts,” the statement continued. “Every day, tens of millions of users of all ages have safe and positive experiences on Roblox, abiding by the company’s Community Standards. Roblox takes any content or behavior on the platform that doesn’t abide by its standards extremely seriously, and Roblox has a robust set of proactive and preventative safety measures designed to catch and prevent malicious or harmful activity on the platform.”[1]
But Hindenburg alleges that the availability of abhorrent “experiences” on the gaming platform is the result of a conscious decision by Roblox to prioritize profits over safety. The report cites former employees who affirm that Roblox decided not to implement parental-control measures and other safety mechanisms under consideration because doing so would have hurt the company’s metrics on user growth and engagement. Hindenburg also notes that Roblox reported a 2% year-over-year decline in its trust-and-safety expenses, opting to replace manual human moderation with less reliable artificial intelligence-powered moderation, in a push toward profitability.
According to Hindenburg, Roblox’s safety issues are not, as the company has said to me, a matter of a few problematic experiences falling through the cracks of its otherwise robust moderation system. Rather, the investment firm alleges that these dangers are a foreseeable result of choices to reduce investments in moderation that could mitigate abuse and to implement design features that enable such abuse in the first place.
More broadly, Hindenburg’s exposé points to the failure of gaming giants to adequately self-regulate and underscores the need for external oversight, including by government regulators. Facing similar evidence of failures by the social media sector, governments around the world have proposed and enacted a slew of regulations requiring companies to implement adequate moderation and other safety measures. Some of these regulations implicate gaming companies, either explicitly or implicitly, but oversight and enforcement so far have focused on mainstream social media sites.
On the day it was released, the Hindenburg report reverberated through Wall Street and mainstream media. But Roblox’s stock price has already rebounded, and news outlets have moved on to other topics. While third-party investigations, including by market-driven entities like Hindenburg, may impose reputational costs on digital businesses, the steady check of government regulation is becoming increasingly necessary.
[1] In its written statement, Roblox added: “The financial claims made by Hindenburg are misleading. The authors are short sellers and have an agenda irrespective of the substance of Roblox’s business model and results. Roblox’s topline is growing quickly. Bookings grew over 22% to $955.2 million in Q2 2024 (the most recent publicly reported quarter) up from $780.7 million in Q2 2023. Over the last four quarters, cash provided by operating activities have totaled $646.3 million and free cash flow was $440.3 million.” The company also said that Hindenburg “neglected to accurately report on the company’s public disclosures. Roblox takes its reporting obligations seriously. Since Roblox’s initial public filing the company has included a Special Note Regarding Operating Metrics that explains how the company’s key operating metrics (including DAUs, hours, and bookings) are calculated.”
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