Dolby Laboratories, Inc. (DLB), Zynga Inc (ZNGA): Three Companies You Should Avoid After Earnings

This mirrors when Zynga Inc (NASDAQ:ZNGA) shares grew 15% in one day back in April following the announcement that real-money online gambling would be brought to the United Kingdom through Facebook and mobile platforms.

Those investors still remaining need to consider the fact that the company faces the same challenges it has for the last few years. The company’s only real success came in 2010 with the “CityVille franchise.” Investors are likely to expect further negative downside as the possibility of a quick turnaround is not likely under the new leadership.

The company has $1.2 billion in cash and short term investments and no debt, buying it time to recreate itself, perhaps through strategic acquisitions. I would not stick around to find out with money on the line, however. Don’t take my word for it, either; take the CEO’s words that “We anticipate two to four quarters of volatility as we work through resetting and developing our strategy for growing top-line revenue and profit.”

Slowing PC and high-end smartphone attach rates creates risks

Dolby Laboratories, Inc. (NYSE:DLB) announced that the fourth quarter profits will come in the $0.30 to $0.36 range which is below consensus. Investors will look at the secular challenges facing the PC market (slowing demand), the decline of optical media, and growing saturation of the company’s addressable mobile opportunity as demand begins to slow down. All of these factors will put pressure on the company’s growth outlook. The company’s fourth quarter guidance suggestions a material deceleration that will continue going in to the 2014 fiscal year.

Without an improved growth outlook or a more aggressive strategy for returning cash to shareholders, investors need to stay clear of this company. Dolby Laboratories, Inc. (NYSE:DLB) is operating in an environment that continues to work against it.

My take

Despite the fact that all three of the companies mentioned have released earnings that came in above consensus estimates, investors need to pay attention to the longer-term picture. Doing so can provide a glimpse into the future, and all three companies are likely to be trading at lower prices given the negative outlooks surrounding them.

Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends Dolby Laboratories and Netsuite. Jayson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Three Companies You Should Avoid After Earnings originally appeared on Fool.com is written by Jayson Derrick.

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