It feels like Hindenburg, the short seller, has been circling Roblox for ages, right?
Well, it’s finally going in for the kill.
Roblox has seen its fair share of ups and downs, but now Hindenburg is claiming that the gaming platform kids can’t get enough of has “inflated” user metrics. The number of users and the amount of time they spent in the rabbit hole are the main barometers of success for gaming companies, so the attack has taken the drama to a whole new level.
The stock took a 10% nosedive before bouncing back like a spring-loaded avatar. Still, given Hindenburg’s track record of bringing down its quarry – and the years of negative buzz surrounding Roblox – investing here is only for the brave.
Many of Hindenburg’s allegations are not new. Issues around child safety on the platform have already been flagged by Bloomberg and The Bear Cave. That’s even after Roblox said it’s been spending a quarter of its revenue on building trust and safety.
But there’s a lot to unpack, so let’s dive in.
The floor is lava
- Roblox reported 68.4 million average daily active users on its platform for 2023. Hindenburg says this metric has been inflated by 25% to 42% or more.
- Users are spending an average of 2.4 hours per day on the platform, the company says. Hindenburg’s analysis suggests just 22 minutes.
- In another red flag, insiders are cashing out. They’ve sold $1.7 billion in stock since the company’s 2021 direct listing. In the last 12 months, they’ve sold around $150 million in stock (that includes nearly $115 million offloaded by CEO David Baszucki.)
But even these new allegations couldn’t push the stock down much further because it has already declined more than 7% in the past month and has been struggling to climb back to its 2021 high.
So, is all the bad news already baked in? Or is the Hindenburg attack a warning sign of worse to come?
Well, the consensus 12-month price target for Roblox is $45.2, a nearly 12% upside from today’s levels, according to Refinitiv. That would make it a good pick.
BUT, there are two things to remember:
- No. 1, these predictions were made before the Hindenburg report landed and could change in the coming weeks.
- No. 2, once Hindenburg has a company in its sights, that company tends to have a very rough time.
Look at Lordstown Motors and Workhorse Group; they nearly went bankrupt or came close to liquidation after the Hindenburg attacks. Others saw their stock drop 80% to 90% in the weeks or months that followed. Even the big names – like India’s Adani Group – have struggled to recover.
