Why Dolby Labs Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of audio technologist Dolby Laboratories (NYS: DLB) surged 14% on Friday after the company posted better-than-expected quarterly results and announced a deal with Microsoft (NAS: MSFT) for the use of its products in Windows 8.

So what: Dolby shares have slumped over the past couple of years on slowing TV and PC sales, but today's double dose of good news is prompting analysts to confidently raise their growth expectations. Strong licensing revenue during the quarter was driven mainly by higher TV unit shipments, while the Microsoft deal eases concerns over Dolby's online and mobile future, giving investors plenty of good vibes about its prospects going forward.

Now what: For the full year, management now sees adjusted EPS of $2.80-$3.04 on revenue of $910 million-$960 million, versus Wall Street's view of $2.56 and $942.7 million. "We also continue to make excellent progress extending our technologies throughout the online and mobile ecosystem," said CEO Kevin Yeaman in a conference call. "By gaining the adoption of Dolby Digital Plus in Windows for online and file-based content, we have taken a major step forward in this vision." Jumping onto a double-digit rally isn't ideal, but with the stock still off about 40% from its two-year highs, there might be plenty of upside left to buy into that bullishness.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Dolby and Microsoft, as well as creating a bull call spread position in Microsoft. The Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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