Tablets a Boon for LeapFrog’s Revenues

According to a recently released report by Research and Markets, worldwide sales of toys grew from $78.1 billion in 2007 to $83.3 billion in 2011, translating to a meager 1.6% annual growth rate. Closer to home, NPD’s report released earlier this year suggests that the U.S. toy market has flattened out. Last year, toy sales in the U.S. fell marginally from $16.6 billion a year ago to $16.5 billion. With the growing consumption of tablet and smartphone-like devices, traditional toy sales have fallen. To continue to retain interest in toys, toy manufacturers are expanding their digital offerings.

LeapFrog’s Financials
LeapFrog’s (NYSE:LF) Q2 revenues grew 16% over the year to $83 million, surpassing market expectations of $77.2 million. It ended the quarter with a loss of $0.04 per share, ahead of the market’s projected loss of $0.06 per share.

By region, sales in the U.S. grew 19% to $58 million and international sales grew 10% to $25 million. LeapFrog’s international expansion continued during the quarter as the company released its new products in several international markets simultaneously. Recently, it also introduced a French-language version of LeapPad 2 to great success.

For the current quarter, they project mid to high single-digit growth, with earnings of $0.32 per share. The market was looking for revenues of $205.3 million and an EPS of $0.34.

LeapFrog’s Successful Digital Expansion
LeapFrog recently released its upgraded tablet, the LeapPad Ultra, to very positive reviews. Soon after its release, the toy was named among the top 10 holiday toys by two leading retailers, Hamleys and The Entertainer, in the U.K. The tablet includes the web browser LeapSearch, which offers kids a safe net browsing capabilities. There is also LeapPad Ultra’s seven-inch high-resolution screen on which kids can use a stylus to access several interactive touch features. It comes with a longer lasting rechargeable battery, front and back cameras and video recorders, and 8 GB of storage.

LeapPad Ultra is priced at $149.99 and can be played with downloadable games priced at $5.00 each or cartridge-based games priced at $24.99 each. The tablet was launched in the U.S., the U.K., Canada, and Ireland. The company plans to release the tablet in additional markets by fall this year.

Meanwhile, LeapFrog continues to build digital content. It now has a collection of more than 800 games, apps, and other digital content that helps teach over 2,600 skills across subjects like reading, math, science, and creative arts. It has also partnered with leading franchises such as Sesame Street and Hello Kitty to offer learning games that help introduce concepts in science, technology, engineering and mathematics to children. Through LeapFrog’s partnership with leading games manufacturer, Hasbro, it introduced My Little Pony and Transformers to expand math and life sciences–focused games.

LeapFrog’s stock is trading $10.30 with a market capitalization of $704.16 million. It touched a 52-week high of $11.95 earlier this month.