With Dolby Laboratories (NYSE:DLB) all set to announce its fiscal third quarter earnings this Thursday, it's a good idea for investors to start thinking about what they should be looking for. To get you started, here are three questions I have going into Thursday's report:
1. When will the bleeding stop?
Remember, even though Dolby beat analysts' estimates on both revenue and earnings per share last quarter, both metrics actually fell from the same year-ago period as the company's core PC and consumer electronics markets continued to decline.
When all was said and done last time around, PC revenue comprised around 26% of Dolby's licensing revenue after falling 2% sequentially and 4% year over year, and consumer electronics comprised 15% after falling 5% sequentially and 25% from the year-ago period.
That's why, with more than 40% of Dolby's licensing revenue at stake, shares of Dolby are currently trading around 50% lower than they stood at the beginning of 2011.
2. Is Dolby gaining traction where it counts?
That said, broadcast revenue has remained robust and made up 38% of Dolby's sales last quarter (up from 33% in Q1), as emerging markets continued to convert to digital television standards, adopting Dolby's technology as a direct result.
In addition, the decline of PCs and consumer electronics certainly isn't lost on Dolby management, who have gone to great lengths to incorporate their signature audio formats into the fast-growing mobile markets.
Remember, back in February, Dolby announced a deal with ZTE to include Dolby Digital Plus in a wide array of the up-and-coming Chinese smartphone maker's newest products.
What's more, Qualcomm decided last year to directly integrate support for Dolby Digital Plus into its Snapdragon mobile chips, and Amazon earlier this year decided to use Dolby's audio superiority as a way to differentiate its latest Kindle Fire tablets in an increasingly crowded market.
Even so, though mobile did grow 10% sequentially last quarter and 32% year over year, it still only represented about 10% of Dolby's total sales last quarter, down from around 11% in the previous three-month period.
If mobile can't continue growing at this impressive clip, then, otherwise-patient investors may be tempted to leave Dolby behind.
3. Any updates on new revenue streams?
Finally, I want to know if investors can expect any meaningful revenue going forward from Dolby's latest technologies, most notably including Dolby Voice and Dolby 3D.
As I mentioned in April, Dolby CEO Kevin Yeaman told us at the time that BT Group (NYSE:BT) was all set to officially launch the first teleconferencing solution featuring Dolby Voice during the third quarter, the progress of which should be a good indicator of whether Dolby Voice will really matter in the end.
Of course, you can bet BT Group would love for its latest teleconferencing efforts to succeed on a wide scale, but it's unlikely the service will have any huge impact on the $41 billion telecom behemoth from a financial standpoint in the near future. Meanwhile, Dolby arguably has much more to lose should the BT's service fail to gain traction.
At the same time, it's also hard to put a handle on just how pervasive Dolby 3D could be. On one hand, considering Dolby created the glasses-free 3-D standard through a partnership with Philips, Dolby 3D could prove just what consumers need to kick-start the dying 3-D television movement.
Even so, as fellow Fool Rich Smith asserted last month, Dolby 3D could just as easily fade away if there isn't enough interest in making decent 3-D content to begin with.
Now don't get me wrong -- these three questions certainly aren't a comprehensive list of everything Dolby shareholders need to determine whether Dolby stock is worthy of their hard-earned investing dollars. They are, however, a great place to start in helping you understand what makes Dolby tick.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Dolby Laboratories, and Netflix. The Motley Fool owns shares of Amazon.com, Netflix, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.