Pulse: E-Tailers Get Coal in Stocking; Nazz Losing Streak Hits Five Days

Will there be a Fed interest-rate cut tomorrow? Tech stocks aren't behaving as if they believe it. Led south by Cisco Systems(CSCO Quote) and e-commerce stocks, the Nasdaq dropped for the fifth consecutive session.

Most of the tech indices were down. TheStreet.com E-commerce Index dropped 7.8%, after eToys'(ETYS Quote) warning Friday that revenue for the quarter would be a little more than half its earlier estimates. The warning brought a handful of downgrades for e-tailers and a lot of pessimism to the sector. Amazon (AMZN Quote) closed the day down 13.1%

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 18.18 -4.81% 359.52 TSC E-Commerce 1.53 -7.84% 17.98 TSC E-Finance 0.83 -2.73% 29.54 Nasdaq 28.74 -1.08% 2624.53

Cisco still appears dogged by reports on Friday that it had set aside an unusually large amount of money to pay for bad accounts. But a Credit Suisse First Boston note put out today said it looks like a smart move to set aside money during a strong quarter.

Cisco fell 3.3% Friday and closed way down today, dropping $5.22, or 10.8%, to $42.94.

Everything about the Internet got a dose of bad medicine -- infrastructure, advertising and e-commerce.

Leading Internet ad agency DoubleClick (DCLK Quote) was downgraded by Goldman Sachs due to the usual suspect -- a weakening ad market. DoubleClick closed down 44 cents, or 3.6%, to $11.69 -- more than 91% off its yearly high of $134.

Internet portal Yahoo! (YHOO Quote) also closed down $1, or 3%, to $32. Since the beginning of October, Yahoo!'s share price has dropped more than 61%.

Web site hosters NaviSite (NAVI Quote) and Digital Island (ISLD Quote) also had ratings reduced by Goldman Sachs. Last Tuesday, NaviSite announced losses for the quarter that far exceeded estimates, and its shares lost 32% in the day's trading.

Goldman Sachs reduced ratings for both companies to market perform from market outperform because of concerns over slowing expenditures by businesses and continued exposure to weak dot-coms. NaviSite closed down 56 cents, or 15.8%, to $3. Digital Island closed down $1.16, or 19.3%, to $4.84.

The Philadelphia Stock Exchange Semiconductor Index was the one index that edged slightly into the green, closing up 0.7%. But communications chip stocks were hit by a downgrade of Terayon Communication (TERN Quote), from Kaufman Brothers, based on concerns over inventory stockpiles.

The downgrade sent Terayon plummeting to close down $8.31, or 61.3%, to $5.25. It also affected other communications chips, which have been struggling with the effect of an inventory correction. Broadcom (BRCM Quote), which had gained 17.5% for the month as of Friday, closed down $17.69 today, or 14.4%, to $105.44.

3:08 p.m. ET: E-Tailers Ripped by Downgrades

The mercury is falling, and tech stocks were feeling the chill today. Stocks are taking hits because of the not-at-all-inspiring holiday outlook for e-tailers and corporate tech budgets that are sinking like a winter thermometer in Chicago.

Online retailer eToys (ETYS Quote) was left shivering in the cold without a blanket after Goldman Sachs and ABN AMRO reduced ratings on the company. On Friday, eToys released revised online sales estimates of $120 million to $130 million for the holiday quarter, much lower than the $210 million to $230 million it had forecast earlier. Goldman Sachs reduced eToys' rating to market perform from market outperform, ABN AMRO cut its rating to sell from add and Robertson Stephens said it was indefinitely suspending its rating and estimates for the company.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 15.64 -4.14% 362.06 TSC E-Commerce 1.42 -7.28% 18.13 TSC E-Finance 0.37 -1.22% 30.00 Nasdaq 23.3 -0.88% 2629.5

The massive shortfall not only sent eToys down 69 cents, or 66.7%, to 34 cents in recent trading -- it also put the squeeze on other e-commerce sites. TheStreet.com E-Commerce Index was recently down 7.28% and trading just above its 52-week low.

"When a company misses by 50%, you have to start questioning the concept of commerce on the net in that category or the execution," said analyst Scott Reamer of SG Cowen.

So if we're talking about e-tailers and the Christmas deadline is fast approaching, makes you wonder what's happening to Amazon (AMZN Quote). It is one of the stocks caught in the breeze from eToys' fall. Amazon, which has lost 21.4% since the day after Thanksgiving, was lately off 12.6%. Merrill Lynch's Henry Blodget is now saying the online toy business and all the other e-commerce categories may not ever carve out the 10% to 15% of retail that he and others have expected -- or if they do, it will be too far into the 21st century to matter to investors in 2000. TheStreet.com took a look at how eToys' problems raise questions for Amazon.

Another target of Goldman Sachs was Barnesandnoble.com(BNBN Quote), which was dropping 15%. Luxury e-tailer Ashford.com (ASFD Quote), reduced by Goldman Sachs to market perform, also was crashing, down 39.3% -- a big hit even for a sub-$1 stock.

Compounding the eToys warning is mounting evidence that the growth rate of online sales is dropping this holiday season. Goldman Sachs analyst Anthony Noto released survey results showing online shopping is growing more slowly than expected and is likely to show 50% growth over last year. Sounds good until you are reminded that a growth rate of 100% had been expected.

Portal America Online (AOL Quote) also fell, although for reasons due more to its merger with Time Warner. The media giant this morning revised its revenue projections downward thanks to a drop in cable advertising revenue, disappointing music sales and an Adam Sandler movie about the son of the Devil that went straight to box-office hell. Dragged lower by Time Warner, which was off 12.4%, AOL was sinking 13.1%.

What else is slowing, instead of growing? The corporate information technology, known as IT, budget.

"Several recent company preannouncements (including Compaq (CPQ Quote)and Microsoft (MSFT Quote) ) have pointed to slower corporate IT spending, reinforcing the concern that a broader and deeper economic slowdown is having a more pervasive effect on corporate IT budgets," wrote Goldman Sachs analyst Rick Sherlund wrote in a note this morning.

Seems these Goldman analysts are working double time today. As a result of Sherlund's research, Goldman reduced the rating of e-commerce software makers BroadVision (BVSN Quote)and Blue Martini (BLUE Quote). BroadVision was trading off 9.5%, while Blue Martini was trading down 10.1%.

Acting on the fear that corporate spending for servers might slow in the next couple of quarters, both Prudential Securities and Merrill Lynch downgraded Sun Microsystems (SUNW Quote). Sun lost 10.5% of its value last week as it was downgraded twice over growth concerns. It was historically a leader among tech stocks and was one of the last ones to see investors drive down its price.

Sun was recently trading down $2.31, or 7.6%, to $28.13, back above new 52-week lows that were hit last week. There had recently been rumors aplenty that Sun would issue a warning due to accounting problems. But the company, which reports earnings on Jan. 18, denied any such thing and affirmed its guidance for the coming quarter.