Dolby Q4 earnings call - 11/14/19
I am going to change the format for this call, brief notes followed by commentary on the story.
- Straight to the forecast for 2020. Midpoint revenue growth of 7%, midpoint EPS marginally above 7%. Main commentary is lowered expected recoveries(audit results) offset by higher TV growth. Dolby Cinema growth similar to 2019, cinema products flat but stabilized, Dolby Voice growth.
- All Apple+ original content will be in DV, major push for DV at Disney+, including re-mastering the Star Wars movies.
- Rock In Rio and ESPN primetime college football broadcast in DA.
- DC backlog 200 screens, 240 installed base, new screens in 2020 similar to 2019. DC is the highest performing format in theaters.
- DIvidend up to .88 from .76 yearly. Bought about $350M in stock in 2019.
Update on the story:
The synopsis here is Dolby has a stable-low growth core audio business with high margins, coupled with an emerging video business. Dolby Atmos and Dolby Voice are the latest innovations in the audio business, great new products that extend the audio franchise indefinitely. The story is the emerging video business, incremental high margin revenue with an enormous addressable market - literally every TV, handset, tablet, PC, etc. My theme has been the world is moving to 4K and DV has the potential to be synonymous with 4K. In addition, the megatrend of streaming has 4K/HDR sitting in the king's chair, content is rapidly moving there and being re-mastered on top of it.
DLB provided some new metrics last night that are so critical to the theme, I will almost watch them exclusively going forward:
The first is on Dolby CInema, which is a combo DA/DV revenue sharing model targeting the premium theater market. They provided the first specifics yesterday, DC is still less than 5% of revenue, qualified at something around $50M. They have previously provided the premium segment as their addressable market for DC, many thousands of screens. They are at 240 with a backlog of 200. Super, super early!
Second and by far the core theme of the story is Dolby Vision. We got the first metric yesterday. 4K represents about half of the 210-220M TV market, DV penetration is 10% of the 4k slice, growing at 100% annually. So something around 10-11M TV's in 2019. Incredible growth lies ahead. The 80% of the market that Samsung does not own is going to use DV as a differentiator, IMO. Ultimately I think Samsung is forced to join, but absent that watershed event the TV market is there to take. The same holds true for handsets, where Apple is already on board and I expect the rest of the premium market, non-Samsung, to follow. Handsets, PCs, tablets, etc are at the infant stage.
The final thought is on the inflection point for DV. They were asked repeatedly about it and the timing of double digit revenue growth. I would paraphrase their response, we are going to forecast mid-high single digit revenue growth until the inflection point, which we won't know until after it happens. It could be any time, even later this year.
Summary - Cooters is always early with these things, but it is coming. Haha |
