Key Takeaways
- Jefferies downgraded Roblox to Underperform (equivalent to Sell) from Hold on Monday while maintaining a $38 price target.
- The price target suggests potential downside of 18% from Friday’s close of $46.44.
- The downgrade comes after Roblox shares surged 30% following second-quarter earnings results, a move Jefferies views as excessive.
- Analyst James Heaney draws parallels between Roblox’s current spending phase and Meta’s margin compression period from 2017-2019.
- Analyst sentiment remains divided: Morgan Stanley maintains an Overweight rating with a $55 target, while the consensus target stands at $49.34.
Shares of Roblox declined on Monday following a downgrade from Jefferies. The stock retreated 4.6% to $44.30 during premarket hours, compounding Friday’s 4.9% loss.
Jefferies lowered its rating to Underperform from Hold. This designation functions as a Sell recommendation.
The investment bank maintained its $38 price target. This forecast represents an 18% decrease from Friday’s closing level of $46.44.
Roblox shares have surged 30% since the company released second-quarter results on July 30. However, the stock remains down 43% year-to-date.
According to Jefferies analyst James Heaney, the recent rally has outpaced fundamental improvements.
The Case for Downgrade
Heaney contends that the stock’s appreciation reflects excessively bullish expectations for Roblox’s 12-month bookings outlook. He believes improvements in user engagement and bookings within the U.S. and Canadian markets will require more time and capital expenditure than the market anticipates.
“The magnitude of current investments against soft bookings trends will pressure margins,” Heaney stated in his research note. He highlighted concerns that Roblox may need to sustain elevated spending levels even as bookings growth moderates.
Heaney referenced Meta Platforms’ experience from 2017 through 2019. During that period, Meta increased investments in trust and safety initiatives while revenue expansion decelerated amid the transition to Instagram Stories.
“RBLX is similarly in investment mode,” he noted.
Jefferies also examined the nature of Roblox’s recent U.S. and Canada user expansion. Daily active users increased from approximately 20 million at the start of 2025 to a high of 26 million in Q3. Jefferies attributes this surge to viral sensations like Grow a Garden and Steal a Brainrot, though noted that user retention from these titles proved disappointing.
The Data Supporting the Thesis
Roblox’s revised content algorithm now prioritizes games demonstrating superior long-term user retention. Jefferies anticipates this shift will constrain near-term user growth throughout upcoming quarters.
The firm expressed skepticism about daily active users returning above the 25 million threshold until the algorithm demonstrates capability to diversify into additional game categories and attract more users aged 18 and above.
Total bookings, Roblox’s primary revenue indicator, increased 8% to $1.57 billion during the second quarter. This result landed at the lower boundary of the company’s guidance range of $1.55 billion to $1.61 billion.
Roblox has projected third-quarter bookings between $1.58 billion and $1.65 billion. This guidance range implies a sequential decline of 14% to 18%.
Barron’s included Roblox among its stock recommendations on November 25, 2025. Shares have dropped 49% since that recommendation.
Not all Wall Street analysts share Jefferies’ bearish view. Morgan Stanley’s Matthew Cost stated on September 14 that Roblox is demonstrating “encouraging” progress in expanding its total addressable market through AI-powered creation tools, advertising products, and subscription offerings.
Morgan Stanley assigns Roblox an Overweight rating with a $55 price objective, significantly above current trading levels.
Among 32 firms monitored by FactSet, Roblox holds an average Overweight rating with a $49.34 consensus price target. The breakdown includes 15 Buy ratings, 14 Hold ratings, and three Sell ratings.
Jefferies also referenced emerging viral games like Steal an Egg, expressing doubt these titles will attract new demographic segments as effectively as previous breakout hits.
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