Netskope (NTSK) needs to show more growth in net new annual recurring revenue to positively change market sentiment around the company, Morgan Stanley said in a Thursday note.

A significant number of sales representatives were hired in the company's fiscal H2, but net new annual recurring revenue has decelerated in recent quarters as the new hires still have to ramp up, the Morgan Stanley analysts said. This in contrast with early 2025, when Netskope's late-2024 sales hires drove growth in net new annual recurring revenue, the analysts said.

While the company posted better-than expected fiscal Q1 topline results, its revenue figures all decelerated by at least 200 basis points quarter over quarter, according to the note.

The analysts still back their investment thesis of Netskope providing a differentiated Secure Access Service Edge offering in network architecture that was seeing widening adoption with existing customers. However, the company's net new annual recurring revenue has to pick up to prove that their analysis is correct, the analysts said.

Morgan Stanley maintained the company's stock rating at overweight and reduced the price target to $14 from $18.

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