Jefferies Downgrades Roblox to Underperform, Citing Overly Optimistic Rally

Jefferies downgraded Roblox (RBLX) to Underperform from Hold on Monday, telling investors that the stock's recent 30% rally has created overly optimistic expectations for the company's growth. The firm maintained its price target of $38 per share, which implies a potential downside of 18% from current levels.

Growth Forecast Lags Consensus

In a note to investors, analyst James Heaney argued that the market is underestimating how long and costly it will be for Roblox to improve user and bookings growth in its key U.S. and Canada market. Jefferies noted that a recent surge in daily active users, from 20 million in early 2025 to a peak of 26 million in Q3 2025, was driven by short-lived viral games.

The firm believes a new company algorithm that favors games with long-term retention will limit user growth in the coming quarters. As a result, Jefferies forecasts just 5% bookings growth for Roblox in fiscal 2027, significantly below the Wall Street consensus estimate of 13%.

Rising Costs to Squeeze Margins

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Jefferies expressed concern that Roblox will need to maintain high levels of investment even as its bookings growth slows. The firm cut its fiscal 2027 bookings estimate by 6% and its EBITDA estimate by 21%.

Heaney compared Roblox's current situation to Meta's between 2017 and 2019, when a period of heavy spending squeezed margins as revenue growth decelerated. Key investment areas for Roblox include:

• Increased payouts to creators for in-game spending by adult users.
• Higher infrastructure spending to support generative AI adoption.
• Diversification efforts beyond its core platform, such as its "Roblox Everywhere" initiative.

Due to these elevated costs, Jefferies does not project any EBITDA margin expansion for the company until fiscal 2028.