Author Topic: DLB - Dolby Laboratories, Inc.  (Read 5686 times)

LC

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DLB - Dolby Laboratories, Inc.
« on: August 02, 2012, 12:21:44 PM »
I couldn't find a topic on Dolby so I thought I would put it out there:

-Currently priced at 12-13x earnings ($35/sh on $2.75 eps)

-Have increased revenue annually since my data begins in 2002.
However revenue increased just 4% from '10 to '11 -  the lowest annual revenue increase so far. Does this indicate end of the growth phase?

-Excellent margins: ~85% gross margin and ~30% net margin

-Nice balance sheet: excellent current ratio, no long-term debt, very low debt-to-capital ratio.

-There is a small portion of controlling interest but it is small and doesn't seem concerning.


Looks to me like a great company with excellent intangibles (Dolby Surround Sound), no debt, great margins. My only concern is whether they can maintain revenue.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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beerbaron

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Re: DLB - Dolby Laboratories, Inc.
« Reply #1 on: August 07, 2012, 03:37:12 PM »
Isn't Dolby more a license company? They probably have 3-4 big patents that are cash cows, when do they expire? What's their NPV? What's in their pipeline in terms of tech and how successfull have they been at generating new cash cows in the last 4 years?

Just food for tough...

BeerBaron

LC

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Re: DLB - Dolby Laboratories, Inc.
« Reply #2 on: August 08, 2012, 05:45:05 AM »
Isn't Dolby more a license company? They probably have 3-4 big patents that are cash cows, when do they expire? What's their NPV? What's in their pipeline in terms of tech and how successfull have they been at generating new cash cows in the last 4 years?

Just food for tough...

BeerBaron
Thanks for the response. You're right...they seem to just develop audio technology and then license that tech out to the manufacturers. Their 10-K states they are trying to develop audio technology for mobile devices, but most people use headphones and not speakers for their mobile phones, so I'm not sure how profitable that can be. I see that I have to do more research, so again thank you for the concise point in the right direction.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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rmitz

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Re: DLB - Dolby Laboratories, Inc.
« Reply #3 on: August 08, 2012, 07:05:28 AM »
Isn't Dolby more a license company? They probably have 3-4 big patents that are cash cows, when do they expire? What's their NPV? What's in their pipeline in terms of tech and how successfull have they been at generating new cash cows in the last 4 years?

Just food for tough...

BeerBaron

I actually think this is a plus.  It's also a brand, where the audio manufacturers must license the technology to say they're compatible--it's not just patents, if you want to, say, decode dolby 5.1 audio, I don't believe you can ever legally do that without paying the license fee--you have to be completely compatible.

momentumgeek

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Re: DLB - Dolby Laboratories, Inc.
« Reply #4 on: August 09, 2012, 11:17:00 AM »
couple issues here. (i was actually looking at this as a short but missed the earnings drop). you're seeing a shift of viewing from television to ipads...etc (not as a whole but on the margin). ipads with headphones don't need dolby surround sound which means devices are sold that aren't paying a licensing revenue to dlb. also, their competitors are slightly gaining market share. and with the macro weakness and what we saw from gregg, sharp, lg...etc, tv sales are not good right now.

mikazo

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Re: DLB - Dolby Laboratories, Inc.
« Reply #5 on: August 12, 2012, 05:10:31 PM »
I've actually been researching Dolby a little too. From what I can tell, their smartphone licenses include use of proprietary audio encoding and decoding algorithms that allow for higher quality sound that uses less bandwidth, so it probably doesn't matter whether end users are using headphones or speakers. Smartphones aren't Dolby's only source of licensing revenue anyway. About 20% is from DVD/Blu-ray players, about 30% is from television broadcast equipment, and about 30% is from PC OEM licensing. Dolby announced in Q2 this year that they've secured the inclusion of Dolby Digital Plus in Windows 8, which is a big plus to keep their PC licensing revenue stream going.

One thing I like is one of their three licensing models called the two-tier model. Integrated circuit manufacturers have to pay a one-time up-front license fee and pass quality testing to be able to include Dolby technology in their computer chips. Then, original equipment manufacturers (OEMs) have to pay royalties for each unit sold that includes these computer chips, so Dolby gets a piece of the pie twice, and on an on-going basis. Dolby is also in relationships with online content delivery companies such as Netflix and Amazon, so it would be great if they could break into that market as well.

I really like the extremely high margins, return on equity, return on assets, free cash flow growth, low R&D costs, and low debt. The only thing that sort of concerns me is this excerpt from their 2011 annual report:

Quote
For the foreseeable future, Ray Dolby or his affiliates will be able to control the selection of all members of our board of directors, as well as virtually every other matter that requires stockholder approval, which will severely limit the ability of other stockholders to influence corporate matters.

boilermaker75

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Re: DLB - Dolby Laboratories, Inc.
« Reply #6 on: September 17, 2012, 03:31:55 PM »
Has anyone taken a look at DLB? DLB closed today at $34.80, has no debt, and has $9.48 of cash per share. The revenues have grown from $482 million in 2007 to a TTM revenue of $945 million. The enterprise value is $2.72 billion and the TTM FCF is  $0.355 Billion.  So  EV/(TTM FCF) = 7.7.

DLB has technology in the new Kindle tablets.

I have approached DLB conservatively having written Aug $30-strike puts, which expired, and today writing December $30-strike puts for $0.85 per share.

boilermaker75

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Re: DLB - Dolby Laboratories, Inc.
« Reply #7 on: September 17, 2012, 03:34:32 PM »
Sorry, I should have done a search before posting. I see there is already a DLB thread.

ShahKhezri

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Re: DLB - Dolby Laboratories, Inc.
« Reply #8 on: September 17, 2012, 05:10:51 PM »
I have been looking at it here and there for the past week.  Definitely on my watchlist, cash flows are strong.  I think this also feeds into some of the news keeping DELL down, that being the PC is dead.  But DLB is entrenched...if there is sound coming out of a device, it is likely that it is under a Dolby patent...at least my very brief readings.  I just have to do a lot more reading on it, not the metrics I'm worried about. 

boilermaker75

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Re: DLB - Dolby Laboratories, Inc.
« Reply #9 on: September 17, 2012, 06:41:02 PM »
I have been looking at it here and there for the past week.  Definitely on my watchlist, cash flows are strong.  I think this also feeds into some of the news keeping DELL down, that being the PC is dead.  But DLB is entrenched...if there is sound coming out of a device, it is likely that it is under a Dolby patent...at least my very brief readings.  I just have to do a lot more reading on it, not the metrics I'm worried about. 


Thanks for you comments ShahKhezri. I agree the PC is not dead, so I have also been looking at DELL and INTC.