Apparently investors like their corporate icons tough, even their domestic divas. As she stood on the courthouse steps after being sentenced to five months in prison, Martha Stewart sounded positively Arnold-esque, vowing, "I'll be back." And with that, her Martha Stewart Living Omnimedia stock climbed from an open of $9 a share to more than $11 by this afternoon. Take note, flailing CEOs everywhere.

 

In today's Motley Fool Take:

 

Martha Stewart's Light Sentence

By

Brian Gorman



One might guess that today would be a gloomy day for Martha Stewart Living Omnimedia (NYSE: MSO) shareholders, as a U.S. District Court judge sentenced the company's founder and namesake to five months in prison.

Instead, the stock is surging, probably because investors are pleased that the home lifestyle queen's sentence was lighter than expected. Nevertheless, jail time, however short, is hardly a plus for a person's reputation. Martha Stewart, ex-con, likely will have very little chance of reclaiming her status as an entertainment icon. In fact, even if she manages to overturn the charges against her in the appeals process, Martha Stewart's revival seems doubtful.

At this point, though, the fate of Martha Stewart the individual may not matter so much. The fact is, even before the company went public in 1999, Martha Stewart Living was well on its way to transcending its founder, with branded goods in a myriad of categories, including bed and bath, paint, and garden tools. Consumers of these products likely take Martha Stewart the person into consideration in their buying decisions about as much as Ralph Lauren (NYSE: RL) customers ponder that company's namesake -- very little. As Martha Stewart no doubt had hoped, Martha Stewart the brand has taken on a life of its own. The Queen is dead; long live the Queen.

As the scandal continues to recede, Martha Stewart Living has a good shot at a revival, perhaps as a smaller, less-proud version of its former self. Indeed, in the merchandise area at least, the signs are hopeful, especially since Kmart Holding (Nasdaq: KMRT) has pledged that it will stand behind the brand. Perhaps most importantly, Martha Stewart Living has the financial wherewithal to weather the storm.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.

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Dell's Dandy Outlook

By

Seth Jayson



So much for all those headlines over the past two weeks: "Tech is a ticking time bomb." "Market falls on tech warnings." Garbage.

Sure, a few companies have reported crummy news recently, such as Red Hat's(Nasdaq: RHAT)restatement, Unisys'(NYSE: UIS)miss, Intel's(Nasdaq: INTC)inventory swell, and Lexar's(Nasdaq: LEXR)margin malaise.

But unless you are invested in some kind of industry-tracking fund, you don't purchase sectors, you purchase companies. What the heck does one networking chip manufacturer's screw-up say about a computer maker's profitability? Zilch.

That's the real lesson to take away from Dell's(Nasdaq: DELL) guidance release today. Despite the financial media's howling about an impending tech downturn, this PC maker revised its second-quarter earnings guidance up from $0.29 per share to $0.31, which should represent a 29% increase over the prior-year period. Only half that gain will be owed to increased profitability, however -- the other penny is the result of a lower tax rate.

Still, the markup should give faith to holders of the recent Motley Fool Stock Advisor pick. Sure, this is no longer a fast-growth tech upstart, but with $4.5 billion in cash, a solid record of earnings growth, success with new products like MP3 players, and a one-point gain in PC market share, this is no languishing titan, either.

Fool contributor Seth Jayson has no position in any company mentioned. View his Fool profile here.

Discussion Board of the Day: PepsiCo

PepsiCo reported strong second-quarter numbers, but investors frowned upon weak sales in snacks, causing Pepsi to lower its earnings outlook. Is the low-carb craze causing problems for the company? What do you think is the Pepsi challenge? Talk to other Fools about the soft drink and snack giant on the PepsiCo discussion board.

Netflix's Growing Pains

By

Phil Wohl



I must admit, I was a bit skeptical at first. Renting movies over the Internet made me feel like George Jetson. When I joined Netflix(Nasdaq: NFLX) and clicked on movies to fill my rental queue, I expected Rosie the robot to roll into my office and spit DVDs out of her metal stomach (in reality, the company covers shipping to send the discs through the mail).

Now, people have gotten on board, and the company's customer list keeps expanding at a healthy clip. But with rapid growth comes the lofty cost to acquire new users.

Netflix appears to have paid a steep price for its 90% revenue growth in its second quarter. The company reported net earnings of $0.11 per share, $0.02 below analysts' expectations. Netflix's subscriber acquisition cost was $35.12 per new trial subscriber in the second quarter, and it expects the number to rise to $37 to $39 in the third quarter (including the cost of increased television advertising). The name of the game in the movie rental business is customer addition and retention, and the company expects its churn rate (the percentage of customers who do not renew subscriptions) in the third quarter to be between 4.8% and 5.6% (it was 5.6% in second quarter). The bottom line is that the company is adding many more subscribers than it is losing each month.

The online movie wizard also tightened its estimates for 2004 by forecasting revenue of $511 million to $525 million (from a previous estimated range of $484 million to $535 million) and net income of $12.6 million to $22.1 million (from $10.5 million to $18.5 million). So, what should investors take from the company's earnings release? Basically, customer growth has its price.

Every successful online business has gone through rough periods of growing pains. Amazon.com(Nasdaq: AMZN), eBay(Nasdaq: EBAY), and especially Time Warner's(NYSE: AOL) America Online had a growth model squarely focused on customer acquisition and retention.

Given the choice of investing between Netflix and the top three movie rental chains -- Blockbuster(NYSE: BBI), Hollywood Entertainment(Nasdaq: HLWY), and Movie Gallery(Nasdaq: MOVI) -- I would select the company with the brightest future. While there might be a few bumps in the road for Netflix, it is clearly on its way to laying a roadmap for the movie rental industry (a view shared by Daniel Hong in his Foolish commentary, The Last Word on Netflix). Therefore, I would look to buy the Netflix shares despite this recent hiccup -- the expected drop in share price presents a real buying opportunity.

Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.

Quote of Note

"Everything that can be invented has been invented." -- Charles H. Duell, Commissioner, U.S. Office of Patents, 1899

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