Last Update 04 Feb 26

DLB: Ongoing Technology Adoption Will Support Returns Despite Choppy Macro Conditions

Analysts have trimmed their price targets on Dolby Laboratories to a range of about $85 to $95. This reflects a more cautious stance on the stock while still pointing to solid recent results and ongoing technology adoption, even as the macro backdrop pressures some revenue streams.

Analyst Commentary

Recent research on Dolby highlights a mixed setup for the stock. While the latest fiscal fourth quarter and guidance were generally in line with expectations, price targets have been reduced, and that points to a more cautious stance around execution and growth.

Bearish analysts are trimming their upside scenarios, cutting targets to a range of about $85 to $95 even as they acknowledge steady revenue and EPS guidance. For you as an investor, this combination of reduced targets alongside solid recent results can signal that expectations for future returns are being reset closer to current trading levels.

Bearish analysts also emphasize that a difficult macro environment is still weighing on some of Dolby's foundational revenue streams. At the same time, they recognize that the company continues to gain adoption of its technologies and generate revenue growth, even if conditions are described as "choppy."

Overall, the tone from the Street is not outright negative, but it is more measured. Analysts are acknowledging progress while reining in how much they are willing to pay for that progress in their models. This feeds directly into valuation and risk assessments.

Bearish Takeaways

Lowered price targets to $85 to $95 suggest that bearish analysts see less upside potential relative to prior expectations, which tightens the margin for error if growth or execution were to disappoint.
References to a "difficult" and "choppy" macro environment highlight ongoing pressure on foundational revenues, raising the risk that earnings could be more sensitive to any slowdown in end markets.
Even with solid fiscal fourth quarter results and guidance that lines up with expectations, the decision to cut targets signals concern that current performance may not fully offset macro headwinds over time.
Comments that the stock should not be making new lows, while still paired with reduced targets, reflect a cautious view that valuation support exists but that upside is constrained by growth and execution risks.

What's in the News

Dolby issued earnings guidance for the second quarter of fiscal 2026, estimating total revenue of US$375 million to US$405 million and GAAP diluted EPS of US$0.94 to US$1.09. For full year fiscal 2026, the company expects total revenue of US$1.4 billion to US$1.45 billion with GAAP diluted EPS of US$2.71 to US$2.86 (Corporate guidance).
Separately, Dolby provided guidance for the first quarter of fiscal 2026, with total revenue estimated at US$315 million to US$345 million and GAAP diluted EPS of US$0.39 to US$0.54. The company also reiterated full year fiscal 2026 expectations of US$1.390 billion to US$1.440 billion in total revenue and GAAP diluted EPS of US$2.61 to US$2.76 (Corporate guidance).
The company continued its long-running share repurchase program, buying back 479,361 shares for US$35 million and then 1,044,838 shares for US$70 million. This brought cumulative repurchases under the program announced in November 2009 to 53,316,704 shares and US$3,094.61 million (Buyback tranche updates).
Dolby announced that Peacock will be the first streaming platform to adopt its full suite of picture and sound technologies, including commitments to Dolby Vision, Dolby Atmos, Dolby Vision 2 and Dolby AC 4 across movies, originals and live sports (Client announcement).
The company declared a cash dividend of US$0.36 per share on Class A and Class B common stock, payable on December 10, 2025, to stockholders of record as of December 2, 2025 (Dividend increase).

Valuation Changes

Fair Value: The model fair value estimate is unchanged at 68.0, indicating no adjustment to the central value anchor used in this analysis.
Discount Rate: The discount rate is essentially flat, moving from 8.45% to 8.44%. The required return used in the model is largely consistent with prior assumptions.
Revenue Growth: The revenue growth input is slightly higher, increasing from 5.15% to about 5.69%. This reflects a modestly stronger top line assumption in the forecast period.
Net Profit Margin: The net profit margin input edges up from roughly 22.83% to 23.34%. This implies a small improvement in expected profitability on future revenues.
Future P/E: The future P/E assumption eases from about 22.28x to 21.86x. This points to a slightly more conservative multiple applied to projected earnings.

Commoditization, open-source alternatives, and proprietary systems by major tech companies threaten Dolby's licensing model, eroding pricing power and shrinking its addressable market.
Regulatory scrutiny and slow, uncertain expansion into adjacent markets increase risks to Dolby's future revenue streams and profitability.
Broad adoption of Dolby Atmos and Vision across industries, strong auto partnerships, and streaming integration drive diversified, resilient revenue and underpin robust long-term earnings and shareholder returns.

Catalysts

About Dolby Laboratories

Engages in the design and manufacture of audio, imaging, accessibility, and other hardware and software solutions primarily for application in the television, broadcast, and live entertainment industries in the United States and internationally.What are the underlying business or industry changes driving this perspective?

As consumer electronics manufacturers increasingly prioritize cost reduction and in-house solutions, the commoditization of audio and video technologies threatens Dolby's licensing model, eroding future pricing power and pressuring both revenue and net margins over the long term.
The accelerating adoption of open-source and good enough software-based audio/video alternatives by both consumers and device makers is likely to diminish the perceived value of Dolby's premium offerings, resulting in a shrinking addressable market and ongoing revenue headwinds.
The proliferation of proprietary audio and video systems developed by major platform owners such as Apple, Google, and Amazon risks cutting Dolby out of future hardware cycles, undermining the company's ecosystem partnerships and putting future royalty and earnings streams at risk as integration gaps widen.
Regulatory scrutiny over dominant technology licensing models and potential antitrust measures could force lower royalty rates, compulsory licensing, or stricter contract terms for Dolby's intellectual property, driving structural declines in both revenue and net profitability regardless of continued ecosystem expansion.
Relying on slow expansion into non-core markets like automotive and a patchy trajectory for new technologies such as Dolby Vision and Atmos outside traditional domains leaves Dolby exposed to underwhelming top-line growth, with the risk that innovation investments see delayed or minimal earnings contributions in the coming years.

Dolby Laboratories Earnings and Revenue Growth

Dolby Laboratories Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Dolby Laboratories compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Dolby Laboratories's revenue will grow by 3.8% annually over the next 3 years.
The bearish analysts assume that profit margins will increase from 19.6% today to 22.5% in 3 years time.
The bearish analysts expect earnings to reach $338.7 million (and earnings per share of $3.44) by about September 2028, up from $264.3 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 27.0x on those 2028 earnings, up from 26.3x today. This future PE is lower than the current PE for the US Software industry at 35.8x.
Analysts expect the number of shares outstanding to grow by 0.43% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Dolby Laboratories Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The strong and expanding adoption of Dolby Atmos and Dolby Vision across diverse sectors such as music, sports, cinema, automotive, and mobile devices highlights a broadening addressable market, which acts as a tailwind for licensing revenues and long-term earnings growth.
The company's increasing engagement with leading automakers, including nearly 30 OEM partnerships and significant momentum in key global markets like China and India, suggests the potential for recurring and diversified royalty streams, supporting resilient revenues and profit margins over time.
Dolby's technologies are experiencing heightened integration with streaming platforms and high-profile content creators, which deepens Dolby's ecosystem presence and can drive premium licensing fees, resulting in stronger top-line growth and stable long-term net margins.
A growing portion of Dolby's revenues are now derived from high-growth categories such as Dolby Atmos and Dolby Vision, which together accounted for 40 percent of total revenues and have demonstrated compounded annual growth rates of approximately 20 percent, supporting both robust ongoing revenue expansion and future earnings contributions.
The company maintains high gross margins and strong cash flows, supported by disciplined expense management and continued innovation investment, all of which underpin long-term financial stability and the ability to sustain or increase share buybacks and dividends, potentially bolstering shareholder returns.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Dolby Laboratories is $74.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Dolby Laboratories's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $114.0, and the most bearish reporting a price target of just $74.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $338.7 million, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 8.4%.
Given the current share price of $72.64, the bearish analyst price target of $74.0 is 1.8% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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