Dekalb County Pension Fund v. Roblox Corporation

On February 13, 2024, Labaton Keller Sucharow was appointed lead counsel in a securities class action lawsuit against Roblox Corporation (Roblox or the Company) (NYSE: RBLX) and certain Roblox officers (collectively, Defendants).  The action asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and U.S. Securities and Exchange Commission Rule 10b-5 promulgated thereunder, on behalf of all persons or entities who purchased or otherwise acquired Roblox Class A common stock between March 10, 2021, and February 15, 2022, inclusive (the Class Period).

Roblox operates a platform that provides developers with tools to create online games and hosts the games on its servers.  Roblox generates revenue by selling its proprietary currency (called Robux) to its users so they can purchase digital items (e.g., weapons, armor, or vehicles) to enhance their gaming experiences.

The action alleges that throughout the Class Period, Roblox reported strong bookings and revenue growth.  The Company attributed this growth to various factors, including the positive effect from COVID stay-at-home orders, its technology investments, and “high-quality” gaming content.  However, Defendants misled investors by failing to disclose that a material portion of Roblox’s growth was due to weak content controls and the lack of spending restrictions on its platform.  These inadequate controls enabled younger Roblox users to play games with inappropriate content and make unauthorized Robux purchases which translated into unsustainable levels of bookings and revenue.

In late September 2021, Roblox began to roll out enhanced user controls on its platform.  Among other things, these new controls allowed parents to put monthly spending limits on their children’s Robux purchases.  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.  On February 15, 2022, the truth about the Company’s unsustainable growth was revealed to investors when Roblox reported surprisingly weak fourth quarter 2021 results.  Most of Roblox’s key metrics missed analysts’ expectations, including quarterly bookings and revenue, leading to a significant decline in the Company’s stock price and significant losses for investors.

The action further alleges that statements made by Defendants throughout the Class Period were materially false and misleading when made because they misrepresented or failed to disclose that (1) the Roblox platform had insufficient content controls and lacked user spending restrictions; (2) these inadequate controls enabled younger Roblox users to play games with inappropriate content and make excessive, unauthorized Robux purchases; (3) a material portion of Roblox’s bookings and revenue growth was due to these excessive, unauthorized Robux purchases; (4) fourth quarter 2021 and 2022 bookings would be negatively impacted by Roblox’s planned rollout of enhanced parental controls; and (5) based on the foregoing, the Company’s bookings and revenue growth was unsustainable throughout the Class Period.

The case is DeKalb County Pension Fund v. Roblox Corporation, No. 3:23-cv-06618-RS (N.D. Cal.).  Arkansas Teacher Retirement System and DeKalb County Pension Fund are represented by Labaton Keller Sucharow.

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