Today’s stock represents one of our favorite strategies of investing in stocks that stand to gain from the rise of the digital age. By investing in the stocks of these companies, investors stand to gain above-average returns as the demand for their innovative products continues to increase in the digital and mobile-first world.
The case in point being Dolby Laboratories, Inc. (NYSE:DLB), which develops and licenses audio and imaging technologies. It also manufactures audio and imaging products for the cinema, television, broadcast, and entertainment industries. Distributed in over 80 countries, these products are used in content creation, distribution, and playback to enhance image and sound quality, and improve transmission and playback.
The company’s technologies transform entertainment and most of its revenue comes from licensing these technologies to a range of customers. These technologies are incorporated into products for enhanced audio and imaging functionality, whether it be at home, at work, on mobile devices, or at the cinema. With the rise of digital entertainment, Dolby’s technologies shall find increased adoption and push DLB stock higher in the coming years.
Just to put it in perspective, Zion Market Research has reported that the global Mobile Entertainment market is set to reach more than $120.0 billion by 2022, which would represent a compound annual growth rate (CAGR) of about 17% between 2017 and 2022. The increasing use of smartphones has been driving the growth of the mobile entertainment market, which shall continue to expand further. (Source: “Global Mobile Entertainment Market Set for Rapid Growth, to reach around USD 128.12 Billion by 2022,” Zion Market Research, March 20, 2017.)
And Dolby Laboratories, with its innovative sound and imaging technologies, stands to capitalize on this growth. Dolby is set to capture increased market share in the coming years, not only through smartphones, but also through smart home entertainment.
DLB stock was in the news this September, when Apple Inc. (NASDAQ:AAPL) announced that “Apple TV 4K” would support “Dolby Vision,” which is a video technology to improve the quality of videos.
And it’s not just the Apple TV; Dolby Vision would also be incorporated into the “iPad Pro,” “iPhone 8,” “iPhone 8 Plus” and the “iPhone X.” Dolby Vision is the company’s high-definition imaging technology that will be added to these Apple devices.
This will further enhance the Dolby Vision ecosystem as more manufacturers take notice of this incredible technology to provide the highest-quality video experience to their customers. This will be a big positive for DLB stock in the coming years.
The company derives the majority of its revenue from licensing its audio technologies as well as from licensing consumer imaging and communication technologies. Dolby also provides products and services for a variety of applications in the cinema, broadcast, and communications markets. It enjoys a dominant position in its markets with strong cash flow.
Dolby announced its fiscal fourth-quarter results last month and reported total revenue of $242.0 million as compared to $233.0 million for Q4 last year. For the fiscal year 2017, Dolby reported total revenue of $1.08 billion, compared to $1.03 billion for fiscal 2016. (Source: “Dolby Laboratories Reports Fourth Quarter and Fiscal 2017 Financial Results,” Dolby Investor Relations, October 25, 2017.)
President and CEO Kevin Yeaman stated that the company was well-positioned to bring its experiences to significantly more consumers in 2018. Dolby has continued to build momentum with its new initiatives in Q4. Dolby Vision is being increasingly adopted in televisions and mobile devices and the number of locations with Dolby Cinema is growing fast.
Dolby stock has gone up almost 98% in the last five years, and about 33% over the past one year. The following stock chart shows the impressive gains made by DLB stock.
Chart courtesy of StockCharts.com
Dolby was originally known for its audio products, but today, it has developed a range of technology for entertainment on the large and small screen. With the latest technology licensed by Apple, Dolby stock has gotten a well-deserved boost. But going forward, as its technology adoption grows to other new products and new manufacturers, DLB stock could go much higher.
As the company makes efforts to successfully penetrate the mobile device market, there are risks associated with high competition, but if the company manages to navigate well through innovation and effective execution, Dolby stock has a lot of room to grow.