Dolby Shares Jump 35% in Public Debut

Dolby Laboratories Inc. added the sound of money to its repertoire Thursday.

Shares of the San Francisco company, known for its pioneering audio technology, jumped 35% in their public debut, the best first-day showing for an initial public offering so far this year.

The offering, which raised $495 million, was priced at $18 a share, above the expected range of $13.50 to $15.50 a share. Trading under the ticker symbol DLB, Dolby’s stock rose as high as $25.45 before closing at $24.30, up $6.30, on the New York Stock Exchange.

“People recognize the name,” said David Menlow, president of IPOfinancial.com in Millburn, N.J. “They don’t need to be sold on what exactly Dolby does.”

Founded in London in 1965 by Ray Dolby, the company made its name by inventing a way to cut out the background hiss in tape recordings. In the 1970s, Dolby developed the surround-sound systems used in such films as “A Star Is Born” and “Star Wars.” It later developed Dolby Digital sound used in films, DVDs and video games.

The firm relocated to California in 1976.

The company’s customers include filmmakers, cinema operators and consumer electronic product manufacturers that license Dolby’s technology for things such as DVD players and portable audio players. In 2004, 74% of the company’s revenue came from licensing.

Strong demand for those products helped boost profit in recent years. For the 12 months ended Sept. 24, Dolby reported net income of $39.8 million, compared with $30.9 million the previous year. Sales increased to $289 million from $217.5 million.

Still, Dolby warned in its filing with the Securities and Exchange Commission that sales of DVDs and home theater systems might not be as robust in the future.

“It will slow down,” said Tom Taulli, co-founder of Currentofferings.com, an IPO research firm in Newport Beach. “To maintain their growth rate, they will need to get into other areas besides sound.”

Dolby “has no specific plans” for its IPO proceeds, but probably will use the cash to acquire competitors, the firm said in its SEC filing.

Ray Dolby, now 71, received more than $300 million of the money raised in the offering -- or about 60% of the total -- and will still own almost 70% of the company, a stake worth about $1.6 billion based on Thursday’s closing price.

After a strong year in 2004, the market for first-time stock offerings continues its recovery from the nadir of the dot-com bust. There have been 35 IPOs this year, compared with 20 during the same period in 2004.

Still, Menlow of IPOfinancial.com cautioned against reading too much into Dolby’s first-day pop.

“It says investors are always there for companies with good financials, products and brand recognition,” Menlow said.

Consumer electronics is emerging as a hot market sector, with sales of flat-screen TVs, digital-music players like Apple Computer Inc.’s iPod, and digital video-recording devices driving the market. Dolby benefited from that, analysts said.

Dolby, which has 779 employees, makes its products in Brisbane, Calif., and Wootton Bassett, England.

One of its biggest rivals is Agoura Hills-based Digital Theater Systems Inc., which went public at $17 a share in July 2003 and saw its shares rise more than 45% in their first day of trading. The stock closed Thursday at $18.79, down 23 cents, on Nasdaq.