Roblox shares fell almost 8% to $42.81 after Jefferies downgraded the online gaming platform to underperform, warning that its recovery would take longer and cost more than investors expect.
The broker kept its $38 price target, which implies a further 11% fall from the current price.
Jefferies said the shares' 30% rally since second-quarter results reflected an overly optimistic view of how quickly bookings, the money players spend on the platform's virtual currency, would pick up.
Viral hits fade
The broker argued that much of Roblox's recent user growth came from short-lived viral games.
Daily active users in the US and Canada rose from about 20 million in early 2025 to a peak of 26 million in the third quarter of that year, but have since fallen back to 22 million.
Jefferies said hits such as Grow a Garden and Steal a Brainrot had attracted players who did not stick around.
Roblox has since changed its algorithm to reward games that keep players for longer, which the broker expects to limit user growth over the next few quarters.
Bookings forecasts cut
Jefferies now expects bookings to grow 5% in 2027, against a market consensus of 13%.
It cut its 2027 bookings forecast by 6% and its earnings before interest, tax, depreciation and amortisation (EBITDA) forecast by 21%.
The broker said 2024, not 2025, was the right baseline for judging growth, because recent gains had been flattered by the viral games.
Spending pressure
Jefferies also warned that heavy investment would weigh on profit margins while bookings growth slows.
Roblox is raising payouts to developers by 42% for spending by US players aged 18 and over, stepping up infrastructure spending for generative artificial intelligence (AI) and expanding beyond its core platform.
The broker compared the situation to Meta between 2017 and 2019, when higher spending on safety and infrastructure squeezed margins as revenue growth slowed.
It does not expect Roblox's margins to expand until 2028.
Right strategy, wrong timing
Jefferies said it backed Roblox's push into new genres and older audiences, noting that adults account for 80% of US gaming spend.
But it said the shares, on 22 times 2027 EBITDA, were the most expensive in their peer group.
The broker's bull case values the stock at $65, while its bear case sees it falling to $28.
