Roblox Stock Downgrade
Jefferies downgrades Roblox shares after a recent post-earnings rally, citing slowing growth expectations.
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Jefferies downgraded Roblox to Underperform from Hold, keeping a $38 price target that implies about 18% downside from Friday’s close, saying the stock’s roughly 30% post-earnings rally reflects overly optimistic expectations for bookings growth. The firm expects U.S. and Canadian user and bookings growth to take longer and require more investment than investors anticipate; it also argues that recent user gains were fueled by viral games that struggled to retain players. Jefferies forecasts fiscal 2027 bookings growth of 5%, below Wall Street’s 13% estimate, and warned that sustained spending amid slower growth could pressure margins. Other concerns weighing on sentiment include legal risks and intensifying competition, while analyst views remain divided, with Morgan Stanley maintaining an Overweight rating and a $55 target. Roblox shares fell about 4% to 5% following the downgrade.
Key Points
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Jefferies attributed the U.S. and Canadian daily-active-user rise—from about 20 million early in 2025 to a peak of 26 million—to viral games Grow a Garden and Steal a Brainrot, which quickly lost players. The firm also expects Roblox’s algorithmic preference for games with longer-term retention to constrain user growth in coming quarters.
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Alongside its 5% fiscal 2027 bookings-growth forecast, Jefferies cut its own fiscal 2027 bookings estimate by 6% and its EBITDA estimate by 21%.
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The downgrade came after a volatile stretch: Roblox had fallen 43% year to date, despite its roughly 30% rally after its July 30 second-quarter results; it also declined 4.9% on the Friday before Jefferies’ call.
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A separate source said sentiment was also being weighed by a court ruling allowing an L.A. County child-exploitation lawsuit against Roblox to proceed, and by attention around Meta’s AI-powered Horizon Create tools as a potential competitor.
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