What Happened?

Shares of gaming metaverse operator Roblox (NYSE:RBLX) fell 8.2% in the pre-market session after short-seller Hindenburg Research said the company (RBLX) inflated metrics that track the number of users on its platform amid other concerns. Hindenburg added that DAU (daily active users, a key usage metric for social media platforms), according to Roblox's disclosures, "are not a measure of unique individuals accessing Roblox" because the definition accommodates users with multiple accounts, including bots.

Hindenburg also expressed concerns regarding Roblox's inability to generate a profit, noting that insiders continued to sell shares since its IPO in 2021.

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What The Market Is Telling Us

Roblox’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 5 months ago when the stock dropped 26% on the news that the company reported first-quarter earnings results. Its full-year bookings guidance of 15% year-on-year growth missed analysts' expectations, and investors punished the stock because management said it would grow at 20%+ annually for the next few years at its November 2023 Investor Day. On top of that, the company announced it would start calculating adjusted EBITDA differently, raising some questions. Overall, the results could have been better.

Roblox is down 7.3% since the beginning of the year, and at $39.90 per share, it is trading 16.3% below its 52-week high of $47.64 from September 2024. Investors who bought $1,000 worth of Roblox’s shares at the IPO in March 2021 would now be looking at an investment worth $573.24.

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