Light at the End of the Tunnel?

Even one of the more faithful longs on the Fool's dedicated discussion board wondered if the light at the end of this particular tunnel wasn't actually a train hurtling down the tracks. But, if you want to ignore the whistle and head for the high-beam, you might look at the recent Q2 results from Martha Stewart Living Omnimedia (NYSE:MSO) and say, "Hey, at least there's some life on the top line!" That's what the business press was reporting, right? A sales increase?

The implication would be that you might have trouble making the same claim for other cross-media empires such as New York Times (NYSE:NYT), Tribune (NYSE:TRB), or Gannett (NYSE:GCI), where soft ad sales have continued to hold these companies back.

Now that Martha's going to be hitting the airwaves again on GE's (NYSE:GE) NBC, things should really be starting to sizzle, right? I mean, appearing on Sirius Satellite Radio (NASDAQ:SIRI), home to other quality personalities like Vincent "Big Pussy" Pastore, ought to make her talk of the town again, no?

Well, let's not get overly excited. The top-line action was really just an increase of 4.1%. Revenues came to $46 million. And the snazzier-looking 33.8% increase in publishing revenues owed a lot to the acquisition of Body + Soul.

Without that boost, revenues in the print division were up 24%, and overall revenues for the quarter would have fallen slightly against last year's. If shareholders were expecting a heavy ramp-up after Martha was sprung from the clink, it hasn't arrived yet.

The net loss for the quarter just about doubled to $33 million, tagging each diluted share with $0.65 worth of red ink. If you want to look at the bright side, the 3.2% share dilution helped ease the per-stub loss.

And that brings us to the meat of this story. This is an organization that rewards insiders quite well. With warrants and other equity grants plus big salaries (don't forget guaranteed bonuses for Martha), the revenue increases aren't keeping pace with spending. At the same time, about the only thing management has been able to deliver for outside shareholders is the promise of great things to come: Martha's big TV deals, more advertising pages and dollars (which haven't been enough to stem the losses anyway), and the ever-present talk of "brand visibility."

Whatever I may think of Martha (and not much of it is good), there is some value to her and her brand visibility. But there's a pretty hefty price tag on it right now, especially when its earning power has been so crummy for so long. With red ink expected for this full year, it'd be tough to call $26 a share anything close to reasonable. Looking forward, the stock trades at an incredible 186 times 2006 estimates, which means Martha and Co. have a lot of major -- and pleasant -- surprises to bring home to shareholders if they hope someday to unload their shares for more cash than they paid.

Related Foolishness:

• Martha looks like a sure thing to me.
• Take a look at why Martha's company remains out and down.
• Remember, Martha is no Stern.
• Those aren't raisins, Fool! Those are bugs in Martha's muffins.
• When the going gets tough, heads roll -- but not Martha's.
• Keep your eyes open for fancy numbers.

Seth Jayson was hoping for a spot on Martha's new reality show, but he was told that the producers were looking for something other than a "muckraking Martha-watcher." He offers a shiny new melon baller to anyone who can tell him how much MSLO will be paid for the upcoming Martha TV series. At the time of publication, he had positions in no company mentioned. View his stock holdings and Fool profile here. Fool rules are here.