Analyst William Chappell at Robinson-Humphrey cut the maker of e-commerce software to "neutral" from "outperform."
Shares of the Redwood City, Calif.-based company fell $4.31 to $21.38 in midday trading today. The stock has traded in a range of $10.60 to $93.29 over the past 52-weeks and has fallen about 62 percent so far this year.
Chappell said in his report that recent events have cast some doubt over the near-term investment opportunities for software vendors serving Internet companies.
"While we believe the market prospects remain extremely bright, we expect further turmoil and consolidation to create an overhang on the stocks for at least another quarter, until the clear, long-term winners become more apparent," he wrote.
Chappell said the fate of the sector remains uncertain, as the growth in e-commerce software sales in 1999 and most of 2000 has trailed off.
Pure-play e-commerce companies that mushroomed in the late '90s fell on hard times in the spring, when investors and venture capitalists largely bailed out. Since then, many have gone out of business or scaled back operations through layoffs. Established retailers with e-commerce wings have also slowed down their move to the Web, another blow to software vendors.
The plight of e-commerce software vendors is similar to that of Internet consulting firms, which also have fallen out of favor on Wall Street. High-profile Internet consulting companies that went public over the last 12 months to 18 months--including Scient, iXL, Viant, US Interactive, Organic and others--are facing a shakeout through mergers, acquisitions and bankruptcies.
Chappell maintains his confidence in a few players such as Siebel, BroadVision, Vignette, Kana and Epiphany--but not in the sector as a whole, at least for the next few quarters.
"As the secondary players continue to fall off, the level of uncertainty surrounding the sector will continue to rise," he wrote. "Regardless of how strong the (third-quarter earnings) results are, we expect investor sentiment on the sector to remain negative until the turmoil subsides."
Chappell also cut Epiphany to "outperform" from "buy" and lowered his price target of Vignette to $75 from $100. Vignette fell $3.88, or 13 percent, to $26, and Epiphany dropped $13.13, or 17 percent, to $63.94.
CNET Networks, the publisher of News.com, owns an 8.8 percent stake in Vignette.