Dolby Labs Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction that turns out to be exactly the wrong move.

Let's turn to Dolby Labs (NYSE: DLB  ) . Dolby struggled for much of 2012 as the shift from DVD and Blu-ray discs to digital formats has dealt a blow to its overall revenue. Can the company bounce back? Let's take an early look at what's been happening with Dolby Labs over the past quarter and what we're likely to see in its quarterly report on Tuesday.

Stats on Dolby Labs

Analyst EPS Estimate

$0.45

Change From Year-Ago EPS

(33%)

Revenue Estimate

$221 million

Change From Year-Ago Revenue

(5.3%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Dolby Labs make its earnings sound better?
Analysts haven't been very enthusiastic about Dolby's earnings prospects, dropping their EPS estimates by $0.12 over the past three months. But the stock has fared a lot better, with shares having moved up by more than 13% since late October.

Dolby is dealing with some major issues right now. Its business model of receiving licensing fees when its sound technology gets put into CD and DVD players is under threat from digital downloads and streaming, both of which bypass physical media. The company has seen some promising signs in finding ways to earn revenue from mobile devices and streaming audio, but it's too early to tell whether that can lead to a full recovery from Dolby.

Moreover, Dolby has many important patents in its core intellectual-property portfolio expiring in the next several years. In order to retain its historical strength in the industry, Dolby needs to find new ways to deliver quality sound that fit with the current trends in consumer technology.

But one avenue for future growth for Dolby may come from its Via Licensing subsidiary, which owns a huge pool of near-field communications technology patents to help it make money as NFC-based mobile payments become a reality. In addition, a pool of LTE patents will help it earn money from advanced wireless networks, with Hewlett-Packard (NYSE: HPQ  )  and Clearwire (UNKNOWN: CLWR.DL  ) among several companies having contributed intellectual property related to LTE. Finding ways to benefit from managing other companies' patents benefits HP and Clearwire as well as Via by making it easier to maximize overall revenue, as the two companies simply pay Via a management fee.

Investors should look closely at Dolby's recent results, but more important will be its statements about the future. If it can show signs that it's monetizing its technology even through digital delivery methods, then it will take a load off investors' shoulders.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 29, 2013, at 2:06 PM, IPrealitycheck wrote:

    Via Licensing is no longer running a patent pool for NFC. Patent holders have dissolved this program more than a year ago.

    With regards to LTE, there are two programs: one managed by Via licensing, the other one managed by Sisvel. The existence of two separate programs will create significant challenges for potential licensees trying to understand what value and benefit they get from each licensing program... and why the fees are so different.

    Bottom line: a. it is not realistic to expect revenue from Via Licensing on the LTE program in the near future (may be within a couple of years if patent holders decide to litigate and the outcome is favorable) and b. No revenue will come from NFC patents.

  • Report this Comment On January 30, 2013, at 5:09 PM, TMFGalagan wrote:

    @IPrealitycheck- Thanks for the clarification. I had based my information on this out-of-date page from the company itself:

    http://www.vialicensing.com/licensing/nfc-overview.aspx

    best,

    dan (TMF Galagan)

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