Roblox investor plays hardball over 'weak' parental controls
Shareholder claims company should have 'warned' about issue before stock price plunge
Online games platform Roblox is the subject of a proposed class action by an investor claiming the company wasn't forthcoming about alleged flaws in its parental restrictions.
According to the DeKalb County Pension Fund, when the company began to roll out enhanced user controls in late 2021, this "inevitably caused Roblox's bookings growth to decelerate."
The investor is looking for damages with interest, attorneys' fees, and class certification on its claims that the firm violated securities laws. It asked for a jury trial when it filed in the Southern District of New York this week.
Specifically, the investment fund claims that Roblox's upbeat financial reports were partly to do with "inadequate controls" enabling "younger Roblox users to play games with inappropriate content and make unauthorized Robux purchases which translated into unsustainable levels of bookings and revenue."
Roblox went public on March 10, 2021, on the New York Stock Exchange.
The complaint claims that the implementation of new controls in September 2021, among other things, "allowed parents to put monthly spending limits on their children's Robux purchases," adding: "Unbeknownst to investors, the implementation of these enhanced controls would inevitably cause Roblox's bookings growth to decelerate in the fourth quarter of 2021 and throughout 2022."
The lawsuit hinges on disclosures the investor alleges should have been made before the poor Q4 2021 results came out on February 15, 2022. "Instead of warning investors that a bookings deceleration was imminent from the enhanced user controls, Defendants continued to tout Roblox's growth metrics," the investor maintains.
The complaint [PDF] claims that when pressed by analysts on an earnings call in February 2022 about its slowdown in bookings growth, the defendants "at times ... gave vague responses and were not able to provide details relating to the Company's under-13 user cohort."
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The complaint claims Roblox CFO Michael Guthrie stated that "the slower growth would be core markets, US, the core age demographic in the US, under 13." It also alleges he "confirmed that younger users would no longer be the growth engine for Roblox's bookings." The complaint adds that Roblox had declined to provide investors with Q1 2022 financial guidance beyond January 2022.
DeKalb County Pension Fund goes on to voice concerns post the 2021 implementation of the controls, citing a report from analyst Benchmark Securities, which cut its price target from $70.00 to $45.00 per share on news of the poor quarter. The Benchmark report it cites claimed the Roblox "brand is vulnerable to a user abuse narrative that has begun to materialize and could begin to erode parental confidence in the platform."
The complainants are also alleging "top" Roblox execs "profited ... by selling millions of their personally held Company stock at artificially inflated prices throughout the Class Period."
The company, which provides children with tools to create games hosted on Roblox's servers, also generates some of its revenue by selling its in-house currency, "Robux," to those wishing to buy digital weapons, armor, or vehicles, etc. About half of its users are under the age of 13, which the suit notes exposes Roblox to various Federal Trade Commission regs and other online laws aimed at protecting minors. ®