Dolby Shares Jump 9% on Gains in Dolby Atmos, Mobile, Vision Adoption
Dolby shares closed 9 percent higher Thursday at $70.20 following a strong fiscal Q1 earnings report that came in at the high end of the company's forecast range. Fiscal Q1 revenue was $287.8 million, compared with $266.3 million in the year-ago quarter, said the company.
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CEO Kevin Yeaman highlighted expanded adoption of Dolby Vision and Dolby Atmos, more mainstream availability of Dolby technology in lower priced TVs and sound bars, and Lenovo’s announcement of Dolby Vision in a PC, the first for that category, on a Wednesday earnings call.
Sound bars announced at CES from LG and Sony are significant because they “appeal to a larger consumer base" with price points starting below $600, said Yeaman. In TV, Dolby has more than 10 TV partners, all of which announced 2018 Dolby Vision models, with many pushing the high dynamic range technology down into mainstream lines starting as low as $500, Yeaman said. The company saw further adoption of Dolby Vision in Blu-ray players, smartphones, digital media adaptors and set-top boxes, he said.
More than 200 movies are available in Dolby Vision on iTunes compared with 100 last quarter, and Netflix has more than 200 hours of original content in Dolby Vision, said Yeaman. Among Hollywood studios, Disney, Lionsgate, Paramount, Sony Pictures, Universal and Warner Bros. support Dolby Vision and Dolby Atmos content for the home, he said. Dolby is expanding beyond movies and TV content to gaming and live broadcast, Yeaman said, noting Comcast’s announcement it will deliver the Winter Olympics in Dolby Atmos.
Responding to a question on ATSC 3.0 in Q&A, Yeaman said some of the “foundational components” within the spec are “important for the adoption of Dolby Vision.” The “right conditions” are in place for customers and “would-be customers” of Dolby Vision to adopt the technology “in the context of ATSC,” he said. The ATSC 3.0 video spec includes dual support for hybrid log-gamma and perceptual quantization (PQ) HDR transfer functions but is agnostic on specific HDR technology implementations, including the PQ-based Dolby Vision system (see 1701190059).
Dolby’s Q1 net loss of $81.6 million vs. net income of $53.4 million in the year-ago quarter was due to a preliminary estimated discrete tax expense of $154.6 million due to the new tax law, said the company. Dolby forecasts fiscal Q2 revenue will range from $295 million to $305 million and full-year revenue from $1.15 billion to $1.18 billion.
Dougherty & Co. repeated its “buy” rating on Dolby, said analyst Steven Frankel in a note to investors, saying the company is “well positioned to accelerate revenue and expand margins.” He cited efforts in Vision, Atmos and the mobile business that are “gaining speed,” and bumped Dolby’s price target from $66 to $75 per share. Frankel noted Q1 results included a large royalty recovery from a mobile customer, which the analyst assumed was Apple, that was expected to land later in the year.
In fiscal Q1, Dolby's licensing revenue was up 11 percent, while product revenue dropped 12 percent, on Dolby Cinema shipments that were lower than expected, said Chief Financial Officer Lewis Chew. Broadcast generated 40 percent of licensing revenue, down 4 percent year on year; consumer electronics was 11 percent of licensing revenue, a 3 percent gain, driven by media adapters and sound bars; PCs, 10 percent of licensing revenue, dropped 24 percent over the year-ago quarter, reflecting fewer PCs shipping with disc drives; and mobile, 23 percent of licensing revenue, vaulted 150 percent, driven by the large recovery and a higher tablet shipments, Chew said.