With Dolby Laboratories, Inc. (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 Laboratories, Inc. (NYSE:DLB) 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 Laboratories, Inc. (NYSE:DLB)’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 Laboratories, Inc. (NYSE:DLB)’s licensing revenue at stake, shares of Dolby are currently trading around 50% lower than they stood at the beginning of 2011.
That said, broadcast revenue has remained robust and made up 38% of Dolby Laboratories, Inc. (NYSE:DLB)’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 Laboratories, Inc. (NYSE:DLB) management, who have gone to great lengths to incorporate their signature audio formats into the fast-growing mobile markets.
Remember, back in February, Dolby Laboratories, Inc. (NYSE:DLB) 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, Inc. (NASDAQ:QCOM) decided last year to directly integrate support for Dolby Laboratories, Inc. (NYSE:DLB) Digital Plus into its Snapdragon mobile chips, and Amazon.com, Inc. (NASDAQ:AMZN) 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 Laboratories, Inc. (NYSE:DLB)’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 Laboratories, Inc. (NYSE:DLB)’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 plc (ADR) (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 plc (ADR) (NYSE:BT) 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.
