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LeapFrog’s New Products Are Not Helping Them

Posted on Friday, Dec 19th 2014

According to a report by the Toy Industry Association, total US domestic toy sales remained flat in 2013 at $22.09 billion. Despite the flat sales, youth electronic sales recorded the highest growth at 32% to $565 million followed by arts and craft sales growing 14% to $1.16 billion. Outdoor and sports categories were the biggest market with $4.37 billion and grew 1% over the year. The biggest decline was recorded by infant/preschool category and vehicles, both of which recorded a 6% decline.

LeapFrog’s Financials
LeapFrog (NYSE: LF) recently reported second quarter sales and their financial performance was disappointing. Revenues for the quarter fell 43% over the year to $113.6 million, missing the Street’s projections of $127.1 million. Sales from the US market fell 47% over the year and sales from international markets fell 33%. Loss of $0.03 per share was also higher than the market’s forecast of a loss of $0.01 per share.

For the current quarter, LeapFrog projected revenues of $220 million to $240 million with an EPS of $0.16-$0.28. They expect to end the year with revenues of $450 million to $470 million and an EPS of $0.13-$0.25.

LeapFrog’s New Offerings
Meanwhile, LeapFrog continues to invest in new products that are in line with market trends. The latest addition to their product line-up is the LeapTV. LeapTV is an active video gaming system that is focused on children aged 3-8. The video game console system integrates activity and movement with LeapFrog’s educational curriculum. According to their research, less than 1% of the video game titles are age appropriate for children less than 6 years old. To cater to this market, LeapFrog launched the LeapTV System which includes a gaming console, motion-sensing camera, camera mount, gaming controller with wrist strap along with 16GB memory and built-in Wi-Fi. LeapTV has a simple, intuitive user interface that uses its camera to put the little player into the game and uses the motion sensor to capture their actions on the game while providing them with challenges to sort as they play.

The gaming library includes games focused on math, language, and science skills delivered while children are dancing or playing games with some famous characters like Disney’s Jake and the NeverLand Pirates, Pixar’s Pals, Bubble Guppies, Marvel’s Spider Man, and Disney’s Sofia Princess. The system is priced at $149.99 and gaming cartridges are available at $29.99 each.

LeapFrog is also promoting other products with more strategic tie-ups such as the latest one with international soccer star Mia Hamm to promote the importance of staying active for their wearable offering LeapBand.

Finally, they released Learning Friends, a collection of 11 animal school characters for children of ages 2-5 years. The characters use pretend play and dialogue to help children prepare for their first days of school.

Despite the innovation, their stock is trading at $4.65 with a market capitalization of $326.2 million. It touched a 52-week high of $8.19 in December last year and was trading at 52-week low levels of $4.45 last month.


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