RBLX Stock Downgraded Ahead Of Earnings, Analyst Says Stock Could Fall Another 18%

• Jefferies said the stock’s roughly 30% rally since second-quarter results reflects an overly optimistic bookings outlook.
• The firm expects Roblox’s recovery in U.S. and Canada users and bookings to be "longer and more costly" than the market expects.
• It added that Roblox’s new discovery algorithm could limit short-term user growth by favoring games with stronger long-term retention.

Roblox (RBLX) stock fell in early morning trade on Monday after Jefferies downgraded the shares, stating that the roughly 30% rally since the company’s second-quarter results had priced in too much improvement in bookings.

Jefferies downgraded Roblox to ‘Underperform’ from ‘Hold’ while keeping its price target at $38, according to a note to investors cited by TheFly. The target implies about 18% downside from Friday’s close.

RBLX stock fell nearly 5% in premarket trading. On Stocktwits, retail sentiment around the company remained in ‘bearish’ territory over the past day.

Jefferies Sees Slower Roblox User Recovery

Jefferies said Roblox’s 30% rise since its second-quarter results "reflects an overly optimistic view" of bookings over the next 12 months. The firm expects the recovery in users and bookings in the U.S. and Canada to be "longer and more costly" than the market expects.

Jefferies also flagged Roblox’s new discovery algorithm, which favors games with stronger long-term retention. The firm expects the algorithm change to limit short-term user growth over the next few quarters, even though it could improve engagement and the quality of the games surfaced to users over time.

Jefferies remains positive on Roblox’s efforts to expand into new game genres and attract more users aged 18 and older. Daily users in that demographic rose 32% in the second quarter.

Roblox Bookings Growth Slowed In Q2

In the second quarter (Q2), Roblox reported bookings of about $1.6 billion, up 8% from a year earlier and at the low end of its guidance. That compared with 43% growth in the first quarter.

Revenue rose 36% to about $1.5 billion, while daily active users increased 10% to 123 million. Free cash flow climbed 66% to $294 million, although the company reported a net loss of $185 million.

Management attributed the weaker bookings growth in part to lower spending per hour among younger users in the U.S. and Canada. Those players had moved away from the viral games that drove unusually high spending in 2025.

The discovery algorithm change added another layer of uncertainty. Roblox guided for third-quarter bookings to decline 14% to 18% and withdrew its full-year guidance. 

Legal And Competitive Risks Add To Roblox Concerns

Last week, a Los Angeles judge allowed Los Angeles County’s lawsuit against Roblox to proceed after rejecting the company’s attempts to have the case dismissed. The county alleges that Roblox failed to provide adequate safeguards around age verification, moderation and interactions between children and adults, exposing young users to sexual exploitation and other harmful content.

The Los Angeles case is also part of a broader wave of legal scrutiny. Other government entities, including Texas, have pursued similar claims, while an Ohio securities lawsuit alleges that Roblox misled investors about its child-safety protections.

Competition is another consideration, with Meta’s (META) new AI creation tools posing a potential challenge to Roblox’s position in user-generated content.

All Eyes On Q3 Earnings Next 

Roblox's third-quarter (Q3) report, scheduled for Wednesday, is the next test of whether bookings are recovering. Wall Street expects the company to report a loss per share of around $0.42 on $1.63 billion in revenue.

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