THE DAY AHEAD: Martha Stewart's IPO, the Web play

After perusing the IPO candidates for Friday and next week, we happened upon a startling conclusion -- the best Internet stock on deck may be Martha Stewart's offering scheduled for next week.

Martha Stewart Living Omnimedia, Inc. (Proposed ticker: MSO) is offering 7.2 million shares priced between $13 and $15. Morgan Stanley & Co. is the lead underwriter.

And after reading the prospectus you'll discover a Net stock -- the company mentions the Internet and the Web as much as any e-business. Not convinced? Here's the evidence:

Martha Stewart: Future e-commerce queen?

Martha.com Exhibit one:

"Our Internet/Direct Commerce business provides a unique opportunity for us to fulfill both of our strategic objectives by leveraging our content and our merchandising capabilities to create a one-stop online destination for consumers interested in the domestic arts," the company said in its latest regulatory filing.

That lengthy, lawyer-written line could have come from any .com company.

But unlike a lot of .coms, Martha Stewart is much more than a theory. Martha's strategy is to leverage her TV, magazine, radio and brand online to form a home/wedding/craft/kitchen portal. And who would doubt Martha's ability to "capitalize on revenue opportunities created by the Internet."

She even has the numbers to back her up. That brings us to ...

Martha.com Exhibit two: Internet and direct commerce was the second largest revenue generator for Martha Stewart for the six months ending June 30. Internet/direct sales were $13.9 million for that period, equal to Internet revenue for all of 1998.

Publishing was the big revenue driver with $73.4 million followed by television ($12.8 million) and merchandising ($11.5 million).

Internet and direct commerce (catalogs) are Martha's fastest growing category and her site has more than 925,000 registered users. If you visit marthastewart.com, you can buy those cream-colored pots you've always wanted. It takes a few more clicks than Amazon.com to make a purchase, but we've seen worse e-commerce sites.

Martha.com Exhibit three: What links Amazon (Nasdaq: AMZN), Excite@Home (Nasdaq: ATHM) and Sun Microsystems (Nasdaq: SUNW) with Martha Stewart? Venture capital firm Kleiner Perkins Caufield & Byers. Kleiner Perkins bought a 5 percent stake in Martha Stewart back in July. John Doerr, a partner of Kleiner Perkins, will sit on the company's board.

The company said it hooked up with Kleiner Perkins "to investigate opportunities to maximize the value of our Internet and Martha by Mail business and our company as a whole, including potential strategic transactions relating to that business."

Translation: Martha's .com unit could be spun off at some point. The company has no definitive plans, but Kleiner Perkins will profit nicely if the unit is spun off. For now, Kleiner Perkins will help Martha evaluate strategic transactions and recruit personnel. "We believe that the investment in our company by Kleiner Perkins, and the participation of John Doerr on our Board of Directors, will provide significant strategic benefits to us as we expand our Internet/Direct Commerce business," the company said.

Of course, there are a few risks. The company relies heavily on Martha Stewart -- she is the company. The company's biggest challenge is cutting back on its reliance on Martha Stewart. And one could argue that Martha is a media company and not a pure Internet play. Our reply: Who cares?

If you haven't seen the writing on the computer screen yet -- everything will be a .com in 10 years. Online brokers are thinking about branches. Amazon builds huge distributions centers. Webvan tries to be a next-generation milk delivery service. And drugstores are teaming up with .coms like they're long lost cousins. Everything is going to be a hybrid.

And Martha Stewart is one heck of a hybrid. Revenue for the six months ending June 30 was $111.5 million with a profit (yes profit) of more than $14 million. She can use her TV and radio programs, not to mention publishing, to push online revenue.

Martha Stewart is an Internet play and here's the last clincher for you loss-loving .com fans. Martha Stewart's Net business had an operating loss of $5 million in 1998 and $4 million for the first six months of 1999.