Jefferies analysts initiated research overage on video game developers Electronic Arts (NASDAQ:EA) at Buy and Roblox (RBLX) at Hold.
The World Cup and a name change have boosted expectations for EA Sports FC (formerly known as Fifa), and Jefferies analysts believe that ongoing execution and the addition of College Football will sustain mid-single-digit percentage growth in sports.
They highlight EA's robust new game pipeline, which features more large titles than Take-Two Interactive (NASDAQ:TTWO), though none match the scale or immediate impact of GTA VI.
“Regardless, we expect discussion on the EA pipeline titles to come to the forefront in the back half of the year, in addition to the tangible ~350bps+ of margin leverage as they release content over the next 3 years,” analysts said.
Meanwhile, Jefferies started RBLX coverage with a Hold rating primarily due to the stock’s premium valuation.
Although Roblox remains one of the leading platforms for user-generated content among 8 and 13-year-olds, analysts note that growth and margin expectations are high. The company and investors are anticipating a return to over 20% bookings growth from FY25-27, compared to the Q2 guidance of 11-15% year-over-year growth, and aiming for over 30% incremental margins in FY25.
“We believe RBLX has the drivers to get back to 20% + bookings growth, but acknowledge that execution has been concerning recently with the company missing top-line expectations 2 of the last 4 quarters,” analysts wrote.
“Meanwhile, the valuation multiple remains expensive with the stock trading at 32x FY25 EBITDA, which is a 37% premium to peers on a growth-adjusted basis,” they added.