LeapFrog Should Consider Expansion Into Asia

The recent report by NPD Group, Global Toy Market Estimates: 2011 Edition, reported that 2010 global toy sales grew 5% over the year to $83.3 billion. The big growth in the toy industry was driven by the Asian market, which grew 9.2% over the year. The toy industry market is growing strong in the emerging BRIC (Brazil, Russia, India, and China) markets where sales grew 13% over the year. The U.S. remained the leading toy consumer with sales of $22 billion. Japan was the second largest consumer, followed by China, which accounted for sales of $4.9 billion.

Leapfrog’s Financials
However, educational toy manufacturer LeapFrog (NASDAQ:LF) saw Q1 revenues fall 6% over the year to $40 million. Net loss per share reduced by $0.03 to $0.34 for the quarter.

By region, LeapFrog’s sales from the U.S. fell 19% over the year to $26 million, due to the higher retail inventory at the end of last year. However, their retail point of sale dollars increased 8% in the U.S.. Sales from international markets grew 37% over the year to $13 million. On constant currency basis, sales would have grown 35% over the year.

For the year, LeapFrog expects sales to be flat or marginally down for the year with EPS of $0.15$0.20. During the current quarter, the company is expecting sales to fall 15%-20% over the year driven by the higher retail inventory carry-over, and a net loss per share of $0.23-$0.26.

LeapFrog’s Digital Offering
LeapFrog continued to expand their digital offerings and recently launched LeapPad, a tablet for kids. The new device is a personalized learning tablet for kids ages four and above. The LeapPad will feature games aimed at enabling learning and creativity among kids and will also have  capabilities such as a digital reader and a built-in camera. LeapPad apps include the Story Studio to let kids build their own stories and the Animation Studio to enable kids to create animation of their favorite characters. The product will retail for $99.99 and will have apps priced at $5.99 each and also charge extra for game cartridges.

Additionally, the company released their first ever iPhone and iPad apps to increase their mobile content. Scout’s ABC Garden app delivers a customized approach through the use of the child’s favorite color, animal, and food to encouraging the child to explore letter names and sounds. They claim to have seen a good response since the app’s launch and plan to continue to release more apps in the coming quarters.

LeapFrog’s International Expansion Plans
LeapFrog is also focusing on expanding sales internationally but have not divulged their growth plans. Their products are currently available in mature English-speaking markets, which include the U.K., Australia and New Zealand. However, looking at the growth in emerging markets, I do hope that they are considering expansion into the Asian markets as well.

LeapFrog’s stock is currently trading at $4.26 with a market cap of $2.76 million. It touched a 52-week high of $6.65 in November 2o1o.