03:36 PM EDT, 07/22/2024 (MT Newswires) -- CrowdStrike Holdings' ( CRWD ) near-term financial outlook faces some uncertainty following Friday's global technology outage, though the cybersecurity company can likely limit "reputational damage" in the longer term, Morgan Stanley said Monday.

Late last week, an information technology outage stemmed from an update the company deployed for its Falcon sensors on Microsoft ( MSFT ) Windows systems. CrowdStrike ( CRWD ) said Friday it had isolated the issue and a fix has been deployed. Mac and Linux hosts weren't affected, according to the company, which said the incident was not a cyberattack.

"Together with customers, CrowdStrike ( CRWD ) tested a new technique to accelerate impacted system remediation," the company said in a Monday update published on its website. "We're in the process of operationalizing an opt-in to this technique." On Saturday, Microsoft ( MSFT ) said the CrowdStrike ( CRWD ) update impacted nearly 8.5 million Windows devices, or less than 1% of all Windows machines.

"While outages from (software-as-a-service) vendors aren't new and typically cause modest impacts, the magnitude of this global outage was different and one of the largest in history, with multiple airlines, banks and healthcare (organizations) impacted," Morgan Stanley said in a note to clients. Contractually, there could be concessions or credits from CrowdStrike ( CRWD ) for failing to meet uptime commitments within its service-level agreement, though the company is not expected to be liable for "broader economic damages," the brokerage wrote.

Morgan Stanley estimated a 1.4% annual recurring revenue, or ARR, headwind from the incident, or 2% including additional discounts and sales cycle impacts. The firm lowered its full-year ARR outlook for CrowdStrike ( CRWD ) by about 2% and its total revenue estimate by 1%.

Morgan Stanley projects a 5% headwind to the company's second-quarter net new ARR, bringing the metric to $209 million, which the brokerage said represented a 6% year-over-year gain and was below Wall Street's views for an 11% rise. The firm expects second-half net new ARR to fall by double digits on an annual basis, with the metric seen down 15% in the third quarter and 6% in the following quarter, as deals push to later in the year.

The brokerage reduced its price target on the CrowdStrike ( CRWD ) stock to $396 from $422, with an overweight rating. CrowdStrike ( CRWD ) shares tumbled 13% in Monday late-afternoon trade after falling 11% Friday.

"We expect some uncertainty over the next (one to two) quarters as the dust takes time to settle," Morgan Stanley said. "Longer term, we believe the reputational damage will be limited given a swift response and encouraging early feedback from customers/partners."

The firm still sees CrowdStrike's ( CRWD ) ARR more than doubling to $10 billion and free cash flow per share almost tripling to $14 by 2028. The company's upcoming analyst day in September should offer more clarity on its mid- and longer-term position, according to the note.

"While the outage doesn't help, we think standardizing on an (operating system and cloud vendor) isn't the likely answer and more diversification in vendors is needed to ensure resilience," Morgan Stanley said.

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