Why Dolby Labs Stock Crashed Today
Key Points
Dolby Labs beat on sales and earnings last night.
Guidance came in far below what Wall Street forecast, sparking a sell-off.
Dolby Laboratories (NYSE: DLB) stock tumbled 9.8% through 9:45 a.m. ET Friday despite beating on top and bottom lines in its fiscal Q2 2026 earnings report last night.
Heading into the report, analysts forecast the audio tech powerhouse would earn $1.33 per share on quarterly sales of $385.8 million. In fact, Dolby earned $1.37 per share, pro forma, on $396 million in sales.
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Dolby Q2 earnings
The news wasn't quite as good as that makes it sound -- actual earnings per share, as calculated under generally accepted accounting principles (GAAP), were only $0.99, and the "$1.37" figure was non-GAAP. But even so, Dolby beat expectations, growing sales 8% year over year and earnings 5% year over year.
The news certainly could have been worse.
Unfortunately, the news on guidance was worse.
What's next for Dolby stock
A lot worse.
Dolby wrapped up its earnings report with a warning that non-GAAP profit will be only about $0.63 per share in Q3 (which is already underway) -- about a third less than the $0.98 per share Wall Street was anticipating. Full-year earnings could still hit the mark, with Dolby forecasting total 2026 non-GAAP profit between $4.30 and $4.45 per share, slightly ahead of Wall Street estimates.
Still, when measured under GAAP, Dolby expects to earn no more than $0.34 per share in Q3 and no more than $2.81 per share for the year. That's a steep sequential decline for the quarter, and for the year, it values Dolby stock at least 20 times earnings -- and possibly even higher.
For a stock growing sales and earnings only in the mid-single digits, that sounds like too high a price to pay.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Dolby Laboratories. The Motley Fool has a disclosure policy.