Dolby Laboratories (DLB), a long-time market leader in audio, visual, and voice technologies, reported robust Q4 and full-year results for 2024, showcasing considerable revenue, operating income, and cash flow improvements. This performance lifted the company’s stock value by over 13% in the past few days. Dolby expects significant growth opportunities from Dolby Atmos, Dolby Vision, and the recent acquisition of GE Licensing for $429 million, projecting a 4.5-9% revenue increase in 2025. Despite a premium valuation, Dolby offers upside potential and a strong economic moat for income-oriented investors.
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Dolby Making Great Strides
Dolby Laboratories is a global leader in audio, visual, and voice technologies. It offers services to various sectors, including cinema, home theaters, PCs, mobile devices, and gaming.
The company recently made tremendous strides, completing the acquisition of GE Licensing, which is expected to increase margins and earnings by the Fiscal year of 2025 and strengthen the company’s position in imaging patents. The company also acquired THEO Technologies, expanding Dolby.Io’s ability to offer top-notch solutions for real-time streaming experiences. Adding to that, Dolby’s recent addition of WEY and Smart has doubled the number of automotive OEM partners supporting Dolby Atmos to over 20 within a year.
Significant strides were also made in product integration. Case in point, Meta’s (META) MetaQuest headset now supports Dolby Atmos. Apple’s (AAPL) iPhone 16 offers Dolby Atmos and Dolby Vision support, as well as Dolby Vision recording capabilities. The list goes on, including Xiaomi (XIACF), Lenovo (LNVGY) and others.
Dolby’s Recent Financial Results & Outlook
In the fourth quarter of Fiscal 2024, Dolby Laboratories recorded a total revenue of $305 million, a slight increase from the $291 million posted in the fourth quarter of Fiscal 2023. However, it fell short of analysts’ expectations by $2.94 million. On the brighter side, GAAP and non-GAAP net incomes significantly improved. GAAP net income shot up from $9 million ($0.09 per diluted share) in Q4 2023 to $59 million ($0.61 per diluted share) in Q4 2024. Similarly, non-GAAP net income rose from $64 million ($0.65 per diluted share) to $78 million ($0.81 per diluted share), beating consensus projections by $0.11.
For the Fiscal year 2024, total revenue dipped from $1.30 billion in fiscal 2023 to $1.27 billion. However, the GAAP net income increased from $201 million ($2.05 per diluted share) in Fiscal 2023 to $262 million ($2.69 per diluted share) in Fiscal 2024. Similarly, the non-GAAP net income for the full fiscal year also rose from $348 million ($3.56 per diluted share) to $369 million ($3.79 per diluted share).
The company announced a cash dividend of $0.33 per share, an increase from the past few quarters, and offering shareholders a dividend yield of 1.49%.
2025 Guidance
Following DLB’s successful 2024, management has offered guidance for the next quarter and year. For Q1, they anticipate total revenues of $330 to $360 million, licensing revenues of $305 to $335 million, and operating expenses between $230 to $240 million (GAAP basis) and $190 to $200 million (non-GAAP basis). Gross margins are predicted at around 87% and 90% for GAAP and non-GAAP basis, respectively, with diluted earnings per share from $0.53 to $0.68 (GAAP) and $0.96 to $1.11 (non-GAAP).
For Fiscal 2025, management forecasts total revenues of $1.33 to $1.39 billion, operating expenses of $908 to $918 million (GAAP basis), and $765 to $775 million (non-GAAP basis). Gross margins are expected to remain consistent with Q1 projections while operating margins are estimated at 20% (GAAP) and 33% (non-GAAP). Diluted earnings per share are projected to be between $2.43 to $2.58 (GAAP) and $3.99 to $4.14 (non-GAAP).
Final Verdict on DLB?
The stock has been range-bound, managing a -2% return over the past three years. It trades near the middle of its 52-week price range of $66.35 – $90.06 and shows positive price momentum as it trades above all major moving averages. Yet, despite the lackluster recent returns, with a P/S ratio of 6.14x, it trades at a premium to the Specialty Business Services industry average of 2.8x.
However, its strong Q4 results and above-expectations guidance for 2025 have analysts following the company bullish on DLB stock. Based on their recent recommendations, Dolby Laboratories is rated a Moderate Buy overall. The average price target for DLB stock is $100.00, representing a potential 24.15% upside from current levels.
Despite the stock’s premium valuation, Dolby presents attractive investment potential, notably for those seeking income-oriented investment strategies.
