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Dolby Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Dolby Laboratories (NYSE: DLB  ) fell as much as 12% on heavy volume after the company reported market-beating financial results for its fiscal first quarter but reduced its guidance for full-year revenue.

So what: Dolby now says it expects to book $930 million to $970 million in fiscal 2011 revenue. Earlier, Dolby forecast $950 million to $990 million. CEO Kevin Yeaman blamed the revision on a slowdown in the PC market.

Now what: Whether that's fair remains to be seen. But having witnessed Dolby's forthcoming offerings at last month's Consumer Electronics Show in Las Vegas, I have a hard time making sense of the sell-off. More immersive video experiences are going to demand more immersive audio, and no one does immersive audio better than Dolby.

But don't take my word for it. The numbers we do have -- the first-quarter results -- were better than Wall Street expected. Revenue improved 9.8% to $242.7 million. Non-GAAP profit jumped 17.2% to $0.75 per share. Analysts were expecting $234.8 million and $0.62, respectively.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is at least 10% better than other disclosure policies.

Read/Post Comments (3) | Recommend This Article (29)

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  • Report this Comment On February 04, 2011, at 4:35 PM, woo131 wrote:

    Too bad you didn't think enough of Dolby's offerings at the CES last month to actually mention them in your review. If more of the electronics world is going mobile, it is hard to see the importance of Dolby offerings there (audio with earplugs). Isn't this a mature company which should be using its cash to give a dividend?

  • Report this Comment On February 11, 2011, at 12:31 PM, tradesmarter11 wrote:

    I like DLB , but can someone please research why the top directors and sales executives sold thousands of their shares of DLB the week of Feb. 02/ to feb 09 2011???? I'd like to buy it , but from all the insider selling going on, how can i believe in DLB? It doesnt appear management has any want to own their own stock. IF DLB was really a good buy, wouldnt they be snapping it up? Just read the insider filings to see the truth. Am I wrong? I'd like to know if my analisys is sound? Management doesnt want to own this stock, and why should we?

  • Report this Comment On February 19, 2011, at 10:20 AM, deltafox2 wrote:

    There's hardly any device today outputting high quality audio that doesn't have a Dolby sticker on it somewhere. While the license fee may be tiny it's the sum that counts. Unless Dolby's market model is falling apart, e.g. due to technology substitution, it should still be a worthwile investment. However, will there be growth? As DLB doesn't pay dividends this is the only straw of hope to cling to. DLB insiders cashing out may simply have had the good sense to cash in on an overbought market. Current PE of 19.5 seems reasonable for a tech stock.

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Dolby Laboratories CAPS Rating: ***