03:58 PM EDT, 07/29/2024 (MT Newswires) -- CrowdStrike Holdings' ( CRWD ) partners expect a roughly 20% reduction in new bookings in the second half of the year following the July 19 global technology outage, Morgan Stanley said Monday.

The outage stemmed from an update the cybersecurity company deployed for its Falcon sensors on Microsoft ( MSFT ) Windows systems. CrowdStrike ( CRWD ) said at the time it had isolated the issue and a fix had been deployed. "Using a week-over-week comparison, greater than 97% of Windows sensors are online as of July 24 at 5pm PT, compared to before the content update," the company said in an update posted on its website Thursday.

Morgan Stanley said Monday its latest checks indicate a 20% reduction in net new annual recurring revenue in the third and fourth quarter. Last week, the firm projected a 15% drop in the third quarter and a 6% fall in the following period. Morgan Stanley's latest expectations are "well below" Wall Street's projections. The firm previously said that the magnitude of the outage was "different and one of the largest in history, with multiple airlines, banks and healthcare (organizations) impacted."

The expected 20% decline in second-half new bookings "is largely based on the channel's prior experience with outages/breaches, given limited visibility on full pipeline impacts so far," Morgan Stanley wrote. "Most deals were paused over the last week, but conversations are starting to pick up again." The firm said its checks indicated that less than 25% of customers were affected by the outage, with the majority seeing "minimal" disruption.

The company hasn't offered major credits or concessions so far, while negative impacts are likely to come in the form of longer sales cycles and pricing pressure on renewals. Morgan Stanley projects full-year net new ARR to fall 7% year over year to $810 million, according to the note. "As a critical component of enterprise security, switching costs are also relatively high for existing (CrowdStrike ( CRWD )) customers, although prospective new customers may take longer to evaluate alternatives."

The brokerage lowered its price target on the CrowdStrike ( CRWD ) stock to $360 from $396 while maintaining its overweight rating. Morgan Stanley removed the stock as its top pick.

"We are slightly more constructive on (CrowdStrike's ( CRWD )) ability to limit long-term reputational damage post the outage given the company's swift response and partner checks indicating limited churn risk so far," Morgan Stanley said. CrowdStrike's ( CRWD ) upcoming catalysts likely include comments from Microsoft ( MSFT ) on the outage when the tech giant reports its latest financial results Tuesday, as well as the potential for CrowdStrike ( CRWD ) to preannounce second-quarter results early August, according to the note.

"We think preliminary results on (second-quarter) ARR and total revenue could help to assuage investor concerns," Morgan Stanley said.

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