Roblox

[weijian]

A UGC games platform. Over the years, we have seen how sticky, scalable and the long runway that Youtube's UGC model has.

I think the most interesting thing is how this captures the attention and mindshare of young children, and subsequently if Roblox is able to "age up" together with these children, the possibilities are aplenty!

Deep Dive: Roblox (RBLX US)

Many former Roblox employees believe the company is on the right track in its aging up initiatives. Specifically, they spoke highly of the capability of the Roblox game engine to build more sophisticated experiences:

“The dirty little secret of Roblox that no one knows or really talks about is just how advanced its game engine really is”
– Former Senior Manager, Developer Content Strategy (Stream by AlphaSense)

“You can also make really complex ones where you can almost make an entire AAA game in the Roblox suite if you really wanted to…I would say that they have most of their ducks in a row to be able to pull it off…It’s going to be a matter of time”
– Former Moderation Manager

“Even the time I spent there, there was a lot of focus and investment, and still is, in building the gaming engine for more sophisticated experiences. You referred to the blockiness. There’s a lot of focus on reducing the dependence on that blocky aesthetic. There’s a lot of investment in that area. It’s clearly paying off”
– Former Senior Director of Engineering

https://valuepunks.substack.com/p/deep-d...ox-rblx-us

[Wildreamz]

YouTube search interest of "Blox Fruits" (One Piece-inspired game on Roblox) now exceeds Genshin Impact.



Daily concurrent active users on Blox Fruits and Genshin Impact also similar (400 to 600k).

Sources:
https://activeplayer.io/genshin-impact/
https://romonitorstats.com/experience/2753915549/

Note that Blox Fruits (2019) is an older game than Genshin Impact (2020), and is just one of many games on Roblox.

(vested)

[EnSabahNur]

No position but sharing this in case it is useful to someone

https://adragonhoard.blogspot.com/2023/0...-bear.html

[EnSabahNur]

Matthew Ball's post on how Roblox might reach profitability (it doesn't make any profits now)

https://www.matthewball.co/all/roblox2024

[weijian]

Matthew Ball's post on how Roblox might reach profitability (it doesn't make any profits now)

https://www.matthewball.co/all/roblox2024

Hi EnSabahNur,

Roblux is not profitable from GAAP perspective. But if we un-accept certain practices like amortizing its R&D expenses, then it is probably profitable. Since it accepts payment upfront and then pays the developers over time (which explains the operating cashflow that Matt Ball raves about), cashflow will not be a problem and they have much less capital needs I suppose with this model.

Roblux isn't dealing with adults and so the traditional ways that platforms monetize may not be a direct copy/paste. But I believe those guys in-charge will figure a way out as they practise and evolve.

[EnSabahNur]

Hindenburg Research's report on Roblox

https://hindenburgresearch.com/roblox/

[Wildreamz]

Hindenburg Research's report on Roblox

https://hindenburgresearch.com/roblox/

TBH, not much new information. Most of the risks (bots, duplicate accounts, potential abuses etc.) are well-understood and not unique to Roblox, but common for all social/gaming companies. In fact, Roblox's parental control flexibility, and censorship policies, is one of the strictest in the industry, especially at this scale. 

No wonder the market shrugged it off. 

(vested)

[EnSabahNur]

But the allegations go beyond that, no? I think they are accusing Roblox of straight up lying?

In 2023, Roblox Told The SEC It Didn’t Provide Data On Alternate Accounts Because It Is “Unable To Identify If A User Has Multiple Accounts”
In a 2023 response to an SEC comment letter requesting more information about its monthly active users, Roblox said it was “unable to identify if a user has multiple accounts and as a result cannot accurately estimate potential duplicate users.“

The Company’s Response To The SEC Appears To Be A Flat Out Lie:
Multiple Former Employees Told Us That Roblox Does Internally Track Single Users With Multiple Accounts, Referring To The Process As “De-Alting”
One former Roblox software engineer told us that like most companies that track usage, Roblox is able to identify users with multiple accounts:

“I have 10 accounts, right? Any given day I could be playing on multiple of them. On multiple devices. Those all get traced back to me. Roblox knows it’s me playing on all ten of those accounts.”

The former engineer described scenarios where players leave multiple accounts in games to earn various rewards – known as “farming”:

“If I have 10 alts [alternate accounts], because I’m farming Pet Simulator on 10 accounts and all of those are running a script on different virtual machines in my computer – they’re all still coming out of the same IP address. I made all 10 of those accounts. Their names are similar. Their account creation times are similar…I’m still one player, not 10.”

A different former employee confirmed this:

“There is some work in that to de-alt things and then a lot of times in the internal metrics, we do run de-alted calculations”.

A technical consultant we hired also indicated that Roblox’s claim that it can’t differentiate between users and people was surprising given the third-party analytics services used by the company. Roblox’s privacy policy shows it uses a slew of tracking and identity verification services including Google Analytics, Veriff, Persona, and Arkose Labs:

On the parental controls part, they may have policies but I guess the point is it isn't working according to Hindenburg? 

Since this is a financial forum, forumers might think it isn't relevant to discuss the impact of these risks to society, but wouldn't this remain a business risk for Roblox? For the record I think this lax moderation is disturbing.

Is the assumption here that so long as multiple social platforms have the same issues, they can go with the herd and so this business risk is minimised?

[b]We Tracked Some Of The Members Of “Adult Studios” And Easily Found 38 Roblox Groups – One With 103,000 Members – Openly Soliciting Sexual Favors And Trading Child Pornography[/b]
[b]The Chatrooms Had No Age Restrictions — As A Reminder, Roblox Reports That 21% of Users Are Under The Age Of 9[/b]
We navigated through the profiles of “Adult Studios” group members and came across various groups titled “Content Deleted” followed by a seven digit number, signifying that Roblox moderators performed a moderation action for content that violated its Terms of Use but didn’t actually ban the groups themselves.
In these Roblox chat groups, we found thriving and active child exploitation marketplaces where users would lure in children by offering Robux, the platform’s in-game currency.
Since May 2024, we found at least 38 Roblox groups where users have openly solicited sexual favors and/or traded nude pictures amongst each other. (Note that we stopped searching after 38. There are many more.)

[Wildreamz]

As you are likely familiar, short seller reports are often a mix of truths and half-truths. 

Are any specific content (regarding child-exploitation and willful negligence on the part of Roblox) there instantly verifiable through a link?

On "lying", instead of blocks of text of he-said-she-said, can you pin-down a specific fact that be straight-up changing the whole valuation model, and class-actionable?

Alt-account exist for any gaming platform, it's quite impossible to pin-down the exact number. Most importantly, are bookings growth consistent? https://www.statista.com/statistics/1376...worldwide/
Based on past quarterly reports, it at least seems that way. It's hard to fake cold hard cash. 

And are bookings per DAU reported growing/constant? https://www.statista.com/statistics/1192...lox-games/
If it isn't, it calls into question that DAUs are increasingly just bots, and not contributing to Bookings, and then we have a real problem. If Bookings are growing with DAU, who cares if Roblox double count some DAUs?

[weijian]

Having had my "fair share" of short reports, I realize there are generally 3 types: (1) Outright (or almost) frauds, (2) Unsustainable business models and (3) The numbers/mgt talk isn't as rosy as it is.

Outright (or almost) frauds They may have a legitimate business but the P/L is fake. So B/S items have to be adjusted accordingly - can be receivables, payables, inventory or cash. Generally, there is no happy ending when targeted (correctly) by short seller. Sometimes, a founder/partner may offer to take over the company especially if the business model is legit.

Unsustainable business models They have legitimate business model and the P/L is probably well represented. So the B/S items are "fair representation". But their business model could be fleecing customers (ie. their regulator's customers) or pursuing growth via create/aggressive accounting/financing methods. Off my head, Valeant Pharma of Bill Ackman fame ticks these boxes.

The numbers/mgt talk isn't as rosy as it is This is tricky because most of us have this part behaviorally built in. This explains why sales agents tend to drive big cars and the middle class are the main clientele of the Rolexes/LV bags - Fake it till you make it. It really depends on which side you decide to be on. Some folks never made it - Holmes of Theranos and Neuman of WeWork - well documented in books. Some of them made it big time - Steve Jobs and Elon Musk - well demonstrated in their flagship company's market cap.

Now back to Roblox. I agree with VB Wildreamz that Roblox's struggles are indeed nothing new, post Facebook-Cambridge Analytica-killing of muslims in a mosque live. When we do transactions on Visa, there will be security loopholes. When we interact on social media, there will be scam victims (whether monetary/sexual or both). As a parent of young kids, I do appreciate that Hindenburg Research has called them out on "lax controls" and do look forward to Roblox improving their safety systems.