LeapFrog Inc: Not just for the Kids!

Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

LeapFrog Enterprices (NYSE: LF) steals the thunder when it comes to combining education, entertainment and technology. They did it with LeapPad and they've done it again with LeapPad 2, matching the LeapPad's first week sell count in just a couple of days.

LeapPad 2 went straight into the Toys 'R' Us Holiday list-something that will be taken note of by parents around the US and the world at large, but what investors shouldn't miss is turning their attention to this enterprise. 

About LeapFrog Inc. :

Founded in 1995 with $800,000 raised mostly from close relatives and friends, LF has come a long way atrracting the right investment and getting the right attention not only from KinderCare but also Larry Ellison of Oracle 

LF went public in 2002 and had a great run till 2004 when it didn't look so good. Shares hit a low in 2009, but the company's prospects have been looking a lot brighter since.

LeapFrog Enterprises is the leader when it comes to educational entertainment for kids. LeapFrog helps children achieve their potential by delivering best-in-class curriculum through engaging content, fun multimedia learning platforms and toys. 

Where they Stand now:

The year-to-date return for the stock is around 54% compared with the S&P 500's return of 16.1%. Last quarter results were a pleasant surprise with a loss per share of 12 cents compared to last year's 21 cents and it beat the analysts projection here by a good margin.

Net sales and profit were driven higher by solid sales volume and lower costs by 31% and 50% respectively year over year. The Introduction of the improved LeapPad boosted sales. With the base model priced at $99.99 it will surely get things going in its favor as the holiday season approaches and the under-10 year olds start preparing their wish-lists. LF has a wide market base spread to over 45 countries. Its products are used in Schools across the US and the LeapPad 2 is expected to reach many more countries later in the fall.

LF has very recently partnered with Putumayo Kids to bring global music to the LeapPad App centre through which music can be purchased by the parents for the kids.

Market Reaction:

Industry analysts do not think this holiday season will go down too well for manufacturers. While most stocks like Mattel Inc.(NASDAQ: MAT), Hasbro Inc(NASDAQ: HAS) have been taking the hit, LeapFrog has been comparatively resilient, inching its way up steadily.

MAT and HAS were recently downgraded to HOLD by analysts as well, mainly due to the public disinterest that might come in because of the Presidential Elections and along with that, the weak markets in Europe. Although HAS has been able to get its products like My Little Pony, Lego Friends, an updated Furby into a keenly watched holiday list along with MAT's Speed remote control, I genuinely doubt an elevated response to these products and I am unsure if they will bring any pace into the slow-paced markets.

This slow reaction is predicted mainly due to the lack of hit products, but with the timing and the reputation of LF's LeapPad, it will continue to sell like hot cakes this season even though toy sales have fallen to $21.2 billion (that's 2% y-o-y) and there has been only a single instance in the last 5 years where toy sales have actually gone up.

To Leap or not to Leap:

LF sports a return on equity much higher than its peer group, an indication that they simply invest much better than their competition. With the shares moving slower than in the past, this is a chance that the investor must not miss. LeapFrog's shares are undervalued and overlooked. I would definitely put my money here. Larry Ellison put his in and Ive always jokingly told myself - If you dont know where to invest, follow the billionaires.


Shaunak88 has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro and Mattel. Motley Fool newsletter services recommend Hasbro, LeapFrog Enterprises, and Mattel. 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 Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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