Dolby Laboratories, Inc. DLB stock has gained 11% in the past month outperforming the S&P 500 composite’s growth 3%.

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San Francisco, CA-based Dolby develops audio and imaging technologies that revolutionize entertainment for user-generated content, TV shows, films, music and gaming.

Strengthening top-line performance and emerging new business opportunities are aiding the stock’s trajectory. DLB outpaced estimates in each of the trailing four quarters, with the average surprise being 15.4%.

DLB stock declined 1.3% in the last trading session and closed at $79.18. The stock is trading 9.1% below its 52-week high of $87.12, reached on Dec 28, 2023.  

Given the pullback from 52-week, investors are now most likely contemplating whether it is a favorable entry point to invest in DLB. Let us dive into DLB’s prospects and determine the best course of action for your portfolio.

DLB Gains From Atmos & Vision Adoption

Dolby’s performance has been gaining from the increasing adoption of Dolby Atmos and Dolby Vision. In addition, the company made significant strides in several key areas in the fiscal fourth quarter, including robust momentum in content creation and securing new partnerships, especially in music, sports and automotive. Dolby added WEY, a premium Chinese car manufacturer, and Smart, a joint venture between Mercedes-Benz and Geely, to its growing list of automotive partners. With more than 20 automotive OEM partners now supporting Dolby Atmos, the company has doubled its partnerships within a year. 

Meta announced Dolby Atmos support across its MetaQuest headset device lineup, enhancing immersive experiences. Apple’s newly launched iPhone 16 supports Dolby Atmos and Dolby Vision, enabling recording in Dolby Vision for enhanced content creation. Major brands like Xiaomi and Polytron launched new TVs equipped with Dolby Vision and Dolby Atmos. Lenovo’s latest ThinkPad and ThinkBook laptops incorporate Dolby Vision and Dolby Atmos, while Alienware introduced a new 4K dual-resolution gaming monitor supporting Dolby Atmos. 

For fiscal 2025, the company expects Dolby Atmos and Dolby Vision to achieve approximately 15% organic growth while imaging patents are expected to grow around 15%, as tougher comparisons in the imaging patents segment partly offset the revenues from the GE Licensing acquisition.

DLB’s Strategic Acquisitions on Point

DLB continues to focus on strategic acquisitions. In June 2024, it announced the buyout of GE Licensing from GE Aerospace for $429 million in an all-cash transaction. GE Licensing, a leading innovator in patent licensing and management, is a subsidiary of GE Aerospace that designs, develops and produces jet engines, components and integrated systems for military, commercial and business aircraft. 

Dolby settled the acquisition of GE Licensing in the fiscal fourth quarter, strengthening its imaging patent portfolio.  Licensing revenues were up 6.6% year over year to $282.7 million. This includes $7 million from the GE licensing acquisition, representing a 7% rise year over year. 

Management anticipates the GE Licensing acquisition to add roughly $55 million to total revenues and boost non-GAAP operating margins and earnings in fiscal 2025. Apart from this, the acquisition of THEO Technologies in July 2024, worth $55 million, is aiding its Dolby.io offerings. With THEO, the company plans to address the growing demand for designing customized experiences in sports and entertainment.

Softness in Device Sales: A Concern for DLB

Overall device sales remained weak during fiscal 2024. Management expects that consumer electronics segment will continue to face headwinds in fiscal 2025, with revenues expected to decline mid-single digits. 

Global macroeconomic weakness and softness in device sales are also weighing on foundational audio revenue growth. In fiscal 2024, revenues were down 10% year over year. This segment's underperformance is particularly concerning as it accounts for nearly 60% of Dolby's licensing revenues. Foundational audio revenues are expected to remain flat in fiscal 2025, owing to flattish market expectations for overall device shipments.

Estimate Revision Activity for DLB

In the past 60 days, analysts have decreased their earnings estimates for the current quarter by 1.9% whereas estimates for the next quarter have been revised upward by 12.8%. The earnings estimate for the current and the next year has been revised upward by 2.9% and 0.7%, respectively.

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DLB’s Expensive Valuation

DLB stock is trading at a premium with a Price/book multiple of 3.04 compared with the industry’s multiple of 2.41.

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Is It a Good Time to Invest in DLB Stock?

Strong momentum in core technologies like Dolby Atmos and Dolby Vision, coupled with strategic acquisitions like GE Licensing, positions Dolby for growth going forward. However, expensive valuation and mixed estimates revision activity warrant caution. The continued downtrend at the box office and weak global consumer electronics sales weigh on Dolby’s performance.

DLB currently carries a Zacks Rank #3 (Hold).

Consequently, it might not be a judicious investment decision to bet on DLB at the moment but long-term investors already owning the stock can stay put.

Stocks to Consider

Some better-ranked stocks from the broader technology space are Plexus Corp., Inc. PLXS, InterDigital, Inc. IDCC and Celestica CLS. PLXS & IDCC presently sport a Zacks Rank #1 (Strong Buy), whereas CLS carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PLXS’ fiscal 2025 EPS is pegged at $6.79, unchanged in the past seven days. PLXS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 10.3%. Its shares have increased 51.8% in the past year.

The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, up 12.5% in the past 30 days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 77.8% in the past year.

The Zacks Consensus Estimate for CLS’ 2024 EPS is pegged at $3.85, up 5.5% in the past 60 days. Celestica’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 13.2%. The stock has inched up 237.3% in the past year.

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