Takeaways From Dolby Laboratories, Inc. (DLB)’s Earnings

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Dolby Laboratories, Inc. (NYSE:DLB)Since reporting earnings that beat analysts’ expectations last Thursday, shares of audio specialist Dolby Laboratories, Inc. (NYSE:DLB) have traded relatively flat as the market “reacted” in an uncharacteristically muted fashion.

However, that doesn’t mean you shouldn’t care about what Dolby had to say in its report. Remember, we’re still talking about a solidly profitable company whose audio technology has permeated the electronics world for the better part of the past several decades.

Last week I posed three questions for Dolby going into earnings, so let’s take a look at Dolby Laboratories, Inc. (NYSE:DLB)’s answers to get an idea of where this business is headed.

On stopping the bleeding
First, I wanted to know if this quarter would give us a better idea of when Dolby Laboratories, Inc. (NYSE:DLB)’s revenue and earnings declines would finally stop. After all, Dolby has had to weather an unrelenting decline the past several quarters in its core PC and consumer electronics segments, which has undoubtedly held the otherwise healthy stock back from larger gains.

As expected, though, this quarter was no different, as PC revenue comprised 22% of licensing after dropping 31% sequentially, or 25% from the same year-ago period. Meanwhile, Dolby Laboratories, Inc. (NYSE:DLB)’s consumer electronics revenue made up around 15% of licensing after falling by 17% from last quarter, or 12% year over year.

As a result, Dolby Laboratories, Inc. (NYSE:DLB)’s total quarterly revenue fell around 1.5% year over year to $207.1 million, while third-quarter GAAP net income fell to $30.2 million, or $0.29 per diluted share, down from $51.5 million, or $0.48 per diluted share a year ago.

That said, however, remember last quarter PC revenue comprised around 26% of licensing, and the consumer electronics segment made up 15% of the total. So while the declines certainly aren’t moderating, shareholders can take solace knowing they represent less of Dolby’s business with each passing quarter.

On gaining traction where it counts
With this in mind, I also asked whether Dolby was continuing to make headway in promising segments like mobile and broadcast.

Sure enough, Broadcast revenue remained steady at 38% of licensing, which was down about 19% sequentially but up 10% over the last year. For those of you keeping track, that decline was largely thanks to a combination of seasonality and a modest decrease in the total addressable market for set-top boxes, while the increase was due to a higher attach rate in the market as a whole.

In addition, mobile made up 12% of licensing revenue, up from 10% of licensing last quarter. While that does represent a 9% sequential decrease — in this case thanks to the “timing of royalty streams from a large licensee” — remember that’s also an increase of more than 80% over the third quarter of last year as the company continues to rack up new wins in the tablet and smartphone space.

On new revenue streams
Finally, I wondered whether investors would receive any updates on the progress of Dolby Laboratories, Inc. (NYSE:DLB)’s newest products, which have yet to provide any meaningful boost in revenue to date.

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