DLB Q4 Deep Dive: Automotive and Streaming Momentum Offset by Lower Margins

Audio and video technology company Dolby Laboratories (NYSE:DLB) announced better-than-expected revenue in Q4 CY2025, but sales fell by 2.9% year on year to $346.7 million. Guidance for next quarter’s revenue was optimistic at $390 million at the midpoint, 2.4% above analysts’ estimates. Its non-GAAP profit of $1.06 per share was 6.7% above analysts’ consensus estimates.

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StockStory’s Take

Dolby Laboratories’ fourth quarter results were met with a muted market reaction, despite exceeding Wall Street’s expectations for both revenue and adjusted earnings per share. Management attributed the quarter’s performance to earlier-than-anticipated deal closures, strong momentum in the automotive segment, and continued adoption of Dolby Vision 2 in televisions. CEO Kevin Yeaman highlighted the company’s progress in expanding its technology across more car models and brands, as well as new wins in mobile and streaming, stating, “We have continued momentum in automotive, new growth drivers for Dolby Vision and TVs, and growing adoption of Dolby Vision and social media.” However, a notable decline in operating margin reflected higher restructuring costs and shifts in product mix.

Looking forward, Dolby’s updated guidance is driven by expectations for further growth in its automotive and consumer electronics partnerships, as well as increased adoption of Dolby Vision 2 by television manufacturers and streaming platforms. Management believes mobile and streaming content will continue to expand Dolby’s addressable market, with CFO Robert Park noting, “We are raising the revenue range for the year, reflecting both the Q1 true-up and some deals coming in earlier and stronger than forecasted.” The company also sees continued geographic diversification and new content partnerships as key contributors to its projected operating margin improvement.

Key Insights from Management’s Remarks

Management cited early deal closures, expanding automotive partnerships, and new TV and mobile initiatives as key drivers of the quarter’s performance.

• Automotive licensing momentum: Dolby expanded its presence in the automotive sector, growing partnerships from 20 to over 35 original equipment manufacturers (OEMs) year over year. Demonstrations at CES showcased Dolby Atmos and Dolby Vision integrations across a range of vehicles, including partnerships with brands like Porsche, Mercedes, Audi, and Cadillac. This diversification extends beyond electric vehicles, tapping into broader global markets and increasing the company’s footprint in in-car entertainment.
• Dolby Vision 2 launch: The introduction of Dolby Vision 2 for televisions received positive feedback at CES, with support from content providers (such as Peacock and Canal+) and TV manufacturers (including TP Vision, Hisense, and TCL). The technology aims to enhance picture quality across both premium and mainstream TV models, opening potential for increased royalty opportunities and greater market penetration, especially in midrange devices.
• Mobile and social media growth: Dolby noted significant traction in mobile, with over 20% year-over-year growth driven by new deals and integration with social media platforms like Meta (on Facebook and Instagram) and Douyin. The adoption of Dolby Vision in these channels is expected to drive higher engagement and increase demand for Dolby-enabled mobile devices.
• Video distribution patent pool progress: The company’s new monetization strategy for imaging patents, including a video distribution program targeting streamers, made progress with Roku becoming the first U.S.-based licensee. Management sees this as a way to expand beyond device manufacturers and into the content service provider space, with early incentives encouraging more sign-ups.
• OptiView adoption and new use cases: Dolby continued to grow its OptiView platform, securing partnerships with the NFL for live streaming and sports betting operators like Veikkaus and SIS. These collaborations leverage OptiView’s low-latency video delivery, enhancing the betting and live sports experience and broadening Dolby’s reach into new customer segments.

Drivers of Future Performance

Dolby’s outlook hinges on accelerating adoption of its technologies in automotive, TV, and streaming, alongside ongoing shifts in consumer electronics demand and patent licensing.

• Expanding automotive and TV adoption: Management expects continued growth from automotive and television partnerships, particularly as Dolby Vision 2 becomes available in more models and streaming platforms begin supporting the technology. The timing of these launches and the breadth of adoption will influence revenue visibility for the coming year.
• Mobile and content licensing diversification: The company sees mobile and streaming services as increasingly important growth drivers, with recent integrations on Meta’s platforms and Douyin supporting broader market penetration. Demand from content providers and device manufacturers for immersive experiences is expected to support licensing growth.
• Macro and industry headwinds: Management flagged memory pricing and shifts in consumer electronics demand as potential risks, especially impacting the mobile and PC end markets. While these effects are expected to be modest, they could introduce volatility in quarterly results, with most mobile deals protected by minimum volume commitments.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace of adoption for Dolby Vision 2 across new TV and streaming partners, (2) continued expansion of automotive partnerships and rollout of in-car entertainment experiences, and (3) progress in licensing to content service providers through the video distribution patent pool. We will also watch for volatility related to memory pricing and consumer electronics demand, as well as traction in new verticals like sports betting and live streaming.

Dolby Laboratories currently trades at $61.74, down from $63.03 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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