Shares of Allbirds could see limited upside until the path to profitability becomes more clear, according to Morgan Stanley. Analyst Alex Straton downgraded Allbirds to equal-weight from overweight, and slashed its price target, following a quarterly earnings report that pointed to greater economic uncertainty for retailers. Allbirds lowered its guidance for the year after citing a slowdown in consumer demand. The footwear retailer announced several cost-cutting efforts, including "dramatically" slowing the pace new corporate hires. The company reported a greater quarterly loss compared with the prior year. "Macroeconomic deterioration, slower sales growth, & a potentially longer timeline to profitability likely pushes out the re-rating catalyst we had hoped for," Straton wrote in a Wednesday note. "We think the stock could remain range-bound until the path to profitability is more clear." The analyst also cut the price target by more than half, to $5 from $12, roughly in line with where shares closed Tuesday. Allbirds fell 1% in Wednesday premarket trading. The downgrade comes after Allbirds cratered more than 65% this year as markets punished unprofitable growth companies. "Our prior upgrade to Overweight was predicated on two items – 1) the post-IPO stock pullback, & 2) a bullish near-term outlook. Since then, we've learned the market is primarily benchmarking BIRD against unprofitable growth companies as opposed to Softlines Retailers," Straton wrote. "These businesses often trade at lower valuation levels than Softlines Retailers, & make BIRD's current, lower valuation appear more fair than we initially thought," Straton wrote. —CNBC's Michael Bloom contributed to this report.