For months, Roblox investors ignored Hindenburg Research like a teenager ignoring their boomer parent about that one bad friend. The short seller called the company overinflated, unprofitable, and possibly built on manipulated user metrics, but Wall Street didn’t care. The stock soared to a multiyear high, and CEO David Baszucki and insiders made out like bandits, cashing in $1.7 billion in stock since the company went public. As long as the stock kept climbing, nobody wanted to hear that the entire business might be running on smoke, mirrors, and a bunch of bot accounts farming Robux.

Then came the earnings report. Roblox stock cratered 16%, and suddenly, Hindenburg’s claims weren’t just a bunch of short-seller noise. Turns out, a company losing $1.07 billion annually while trading at 8.6x sales (a 57% premium to actual profitable gaming companies) might not be the metaverse jackpot investors thought it was.

At first, the Q4 numbers didn’t look bad. Revenue hit $988.2 million, up 31.8% year-over-year and slightly ahead of expectations. The GAAP loss per share was “less bad” at -$0.33 instead of -$0.45. But then they were caught red handed by something called Daily Active Users (DAUs).

Roblox reported 85.3 million DAUs. Analysts expected 88.4 million. Even worse, bookings came in at $1.36 billion, missing expectations, and Roblox’s 2025 guidance was weaker than expected. Management essentially admitted that next year’s growth won’t be as strong as hoped… which is about as comforting as a doctor saying, “Well, we’ll see how it goes.”

In October when they published their doomsday report, Hindenburg did far more than saying Roblox was overvalued. They accused the company of flat-out lying about its growth metrics to keep the stock price propped up.

For years, Roblox has bragged about how many "people" log in daily. But SEC filings show those aren’t actually “people”... they’re duplicate accounts, bot accounts, and alternate logins. A former Roblox data scientist estimated that if the company de-alted (aka removed duplicate accounts), the real DAU number could be 20-30% lower. That means when Roblox says 85 million people are playing, the real number might be closer to 60 million (sounds like fraud to me).

Then there’s the “engagement hours” problem. Roblox claims that users spend 2.4 hours per day on the platform. But independent research suggests that real play data shows closer to 22 minutes per day… meaning Roblox could be inflating engagement by over 100%.

And then there’s the bot problem, which is turning into an absolute disaster. The game Adopt Me!, one of the most popular games on the platform, has been so flooded with bots that 83,000 players signed a petition to remove it. Even Blox Fruits, the second most-visited game, has Facebook groups with over 100,000 members openly selling scripts that let people run 20+ bot tabs at a time. The more bots inflate engagement numbers, the more developers cash in on revenue-sharing agreements tied to “play time”... which is a pretty slick setup if your business model is based on tricking investors into thinking real people are spending hours in your game when it’s actually just armies of bots sitting idle.

Roblox keeps promising it will eventually figure out how to be profitable, but its own executives just keep dipping their hands into the pot to pull out more and more cash.

In the past year alone, insiders dumped $150 million worth of stock. Baszucki himself unloaded $115 million. If this company is supposed to be the future of gaming, why is its own CEO acting like he knows it’s all about to come falling down? Maybe because he knows something retail investors don’t.

As if sketchy financials weren’t enough, Roblox now has a full-blown reputation crisis brewing.

Hindenburg’s report also exposed serious content moderation failures. Investigators found child predators, explicit content, and sexual exploitation running rampant on the platform. They even tested it by creating accounts using the names of convicted pedophiles… and those names were already taken.

One test account uncovered over 600+ games featuring grooming, simulated rape, and glorified violence. Even worse, in 2024, the National Center on Sexual Exploitation officially labeled Roblox a “tool for sexual predators.”

And how did Roblox respond? By cutting its trust and safety budget by 2% in a desperate attempt to push toward profitability. Imagine being told your platform is infested with predators, and your solution is, “Let’s spend even less on moderation.”

For the past year, Roblox has been trading on hype, inflated growth numbers, and the belief that user engagement would keep skyrocketing forever. Investors were willing to look the other way as long as the stock kept climbing. Prior to today’s 13% drop… the stock ran up 66% in the past year.

But now? DAUs are missing, bookings are slowing, insiders are selling, and advertisers are starting to rethink whether they want their brands associated with this mess.Hindenburg’s report warned that Roblox’s valuation was a bubble. This earnings report might have just popped it.

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Stock.News does not have positions in companies mentioned.