Leapfrog Enters Tablet Market

NPD’s Kids and Entertainment Content – 2011 Edition, reports that for every dollar children aged 2 to 14 spent on entertainment content, 79% was directed toward physical format content, while 21% was spent on digital content. In 2009, digital content represented 15% of each dollar spent by children on entertainment. Seventy-two percent of the content purchased comprises music and is followed by movies, video games, television shows, books, and apps. Over the past two years, digitally acquired content has grown the fastest for games at 17%, followed by music’s growth of 14% and movie download growth at 13% annually. Digital growth is driving gaming companies to focus on improving their digital solutions.

Leapfrog’s Financials
Educational toymaker, Leapfrog (NYSE:LF) saw Q2 revenues fall 13% over the year to $54 million driven by a 20% fall in net sales in the United States to $39 million. The reduction in sales reflected the effect of higher retail inventory at the end of 2010 and the timing of new product launches. Net sales from the International segment grew 11% over the year to $15 million, and included a 6% impact of favorable currency exchange rates. Net loss per share of $0.21 was shy of previous year’s net loss of $0.20 per share reported a year ago. The market was projecting revenues of $53 million with a loss of $0.24 per share.

In 2011, Leapfrog expects net sales to be flat to slightly down with a net income of $0.15-$0.20 per share. For the current quarter, revenues are projected to be $139 million-$142 million with EPS of $0.24-$0.28. The Street was looking for revenues of $141.8 million with EPS of $0.28.

Leapfrog’s Digital Plans
After the successful launch of Tag Junior and the Leapster Explorer, Leapfrog’s LeapPad is set to be another such successful digital offering. The new LeapPad is a tablet aimed at kids aged 4 to 9. The tablet is priced at LeapPad at $99.99, with downloadable apps priced at $5.00 and up. It also works with the older game cartridges, which are priced at $24.99.

Like the grown-up version of tablets, LeapPad is an e-reader in addition to being used for playing games and scouting through digital flashcards. Apart from continuing to sell cartridges, Leapfrog is working to offer more than 70 apps for the tablet by the end of the year. The tablet offers features such as personalized education, which include games with skill levels based on the child’s grade and age along with feedback based on child’s performance and connectivity to the Leapfrog Learning Path to enable parents to digitally track their child’s progress. Since the pre-sale launch, the tablet was sold out in the first two weeks and is expected to be one of the hottest products of the upcoming holiday season.

NPD’s Global Toy Market Estimates: 2011 Edition reported that worldwide toy sales grew 5% in 2010 to $83.3 billion. Growth was driven by performance in Asia, where sales were up 9%. The U.S. market was the largest toy market, with sales growing 2% to $22 billion. The researcher estimates that the 2011 global toy market will continue to show growth driven by emerging markets and rebound in the European markets. Last year, the emerging BRIC markets reported a growth rate of 13% over the year. Leapfrog’s improved products should benefit from the improving toy market conditions as well.

The stock is trading $3.54 with a market capitalization of $232 million. It touched a 52-week high of $6.65 in November of last year.