Roblox’s Newest Bear Says Wall Street Is Too Optimistic On Bookings Recovery

A recent rally in shares of Roblox Corp. has gone too far and signals investors are overly optimistic about a potential recovery in bookings growth, according to the stock’s newest bear.

Jefferies Financial Group Inc. analyst James Heaney downgraded Roblox to underperform from hold this week after the video-game company’s shares surged more than 40% from late July through Sept. 21.

The risk-reward is now “unfavorable,” Heaney said in a note published on Sept. 28. While Wall Street’s consensus for next year’s bookings growth is around 13%, he’s modeling a 5% expansion as Roblox’s new algorithm will likely limit short-term user growth in the next few quarters.

“While we are positive on Roblox’s focus on expanding its platform to support new genres and the 18+ age demo, we believe the improvement in US and Canada user and bookings growth will be longer and more costly than the market expects,” Heaney wrote. He maintained his $38 price target, which implies downside of 12% from Thursday’s closing price.

Bears are rare when it comes to Roblox. Heaney’s downgrade makes him just one of three on Wall Street to have a sell-equivalent rating. Among analysts tracked by Bloomberg, 19 recommend buying the stock and 14 have hold ratings. The average price target is about $49.

Even with recent gains, Roblox shares have tumbled 47% this year as changes to improve user safety amid scrutiny over predators using the platform to groom young children led to lower engagement. Roblox has seen time spent on its platform decline in recent months and in July said third-quarter bookings would drop as much as 18% due to new policies including age-verification tools. In May, the company lowered its full-year bookings forecast due to an “aggressive push to enhance safety.”

The solution to fixing user engagement woes could lie in expanding the target audience beyond younger people. In Heaney’s view, the number of Roblox users in the US and Canada are peaking — a sign the company needs to expand its business to less-proven content that can appeal to adults.

Coming out of September’s Roblox Developers Conference, the analyst found positives in the ideas outlined to attract older audiences. These include Roblox Everywhere, which enables users to publish games on third-party storefronts, and Roblox Build, a generative artificial intelligence tool for creating games.

While these are the right moves for the long-term, it’s not the case for the near-term, with daily active user growth in the US and Canada unlikely to inflect. Disruptions from a change on the platform’s Recommended For You algorithm, which now focuses on long-term retention, have been cited as a key issue. Also, current viral hits on the platform like Steal an Egg, a game where players collect rare pets, are exciting but do not show the firm is diversifying beyond younger users.

“With the recommendation algorithm changes focusing on long-term retention, the baseline for growth is not the viral hits of 2025, but 2024,” said Heaney. “Simply put, it is exceedingly difficult for Roblox to grow bookings without growing daily active users first.”

Here are other notable analyst calls and commentary this week:

Citigroup Inc. downgraded Moderna Inc. to sell, triggering its biggest drop in a month, as analyst Geoffrey Meacham said the current valuation is “unjustifiable” following an outsized rally.Netflix Inc. was cut to underweight by Wells Fargo & Co. analyst Steven Cahall, citing concerns about user engagement. The streaming giant also received a downgrade from HSBC Holdings Plc, with analyst Mohammed Khallouf noting the company has suffered from YouTube’s growing living-room footprint.Target Corp. was upgraded to buy from hold at HSBC, as analyst Joseph Thomas said second-quarter results in August provided “strong evidence” that turnaround efforts were “gaining momentum.”