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Leapfrog Enterprises Inc.

Leapfrog Enterprises Inc. November 14, 2013 Yi Liu, Ye Liang, Charalampos Ntantanis, Caleb Pierson. Agenda. Company Background Current Position Macroeconomic Outlook Industry Overview Financial Analysis Valuation Recommendation. Current Position.

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Leapfrog Enterprises Inc.

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  1. Leapfrog Enterprises Inc. November 14, 2013 Yi Liu, Ye Liang, Charalampos Ntantanis, Caleb Pierson

  2. Agenda • Company Background • Current Position • Macroeconomic Outlook • Industry Overview • Financial Analysis • Valuation • Recommendation

  3. Current Position • RCMP recommended for purchase 2000 shares @ market (8.20) which resulted in buying 2000 shares @ $8.19 on April 5, 2013 • Current Stock price is $8.13 • This is an unrealized loss of 0.73%

  4. Macroeconomic Outlook • World (and U.S.) population is growing across the toy consumer age range • Dollars spent on toys increased 7.68% from 2007 to 2012 • Youth electronics decreased slightly from 2011 to 2012 • Nostalgic/Retro toys are making a big push this year • The Consumer Sentiment Index is at the lowest point since 2011 Bloomberg News and Toy Industry Association Inc.

  5. Industry Overview • The U.S. Toy market was worth $22 billion in 2012 • Industry products include dolls/action figures, models, construction kits, scooters, board games, game consoles • Small companies are able to compete alongside larger businesses by focusing on niche products and by reacting more quickly to new trends Source: Hoovers

  6. 5 Forces for Toys and Games Source: Marketline

  7. 5 Forces Analysis Source: Marketline

  8. Company Overview • Leapfrog trades on the NYSE with ticker symbol LF • Company was founded in 1995 by Michael Wood and Robert Lally and headquartered in Emeryville, California USA • Focus: Educational Entertainment for Children • Employees: 552 people on a full-time basis Source: Company Website and 2012 10k

  9. Business Segments and Operations • United States: 73%, 75%, 80% in 2012, 2011and 2010 • Three large retailers: Wal-Mart Stores, Inc. Toys “R” Us, Inc. and Target Corporation • International • United Kingdom, France, Canada, Mexico, Australia, South Africa and Spain. Source: 2012 10k

  10. Product Portfolio Source: Company Website

  11. Product Portfolio • Currently sell 2 versions of LeapPad, 2 hand held computers (GS and the Explorer), 2 sets of eBooks (Tag and the Tag junior), learning toys, and iPhone and iPad apps • LeapPads -- $120 • GS and Explorer -- $70 • eBooks -- $25 to $170 bundles • Toys -- $10 to $25 • Apps -- $0.99 Source: Company Website

  12. Risk Factors • Highly seasonal – Approximately 75% of total sales to retailers to occur during the third and fourth quarters. • Growing strategic focus on online products and services – Depends on consumer acceptance • Rely on a limited number of manufactures • Liquidity maybe insufficient to meet the long-term or periodic needs

  13. Seasonality Source: 2012 10k

  14. SWOT analysis

  15. Management Outlook • A number of changes to executive management team during 2012 and 2011 • Anticipate continued business growth at a pace ahead of the market with net sales expected to increase at high single –digit percentage growth rate • Plan to make long-term investments in content, international expansion, online communities, systems and new platforms

  16. Major Shareholders Source: Yahoo finance

  17. Major Shareholders • Well known financial institutions Source: Yahoo finance

  18. Key People • Mr. John Barbour, Chief Executive Officer, Director and Member of Non-executive Officer Stock Award Committee • Raymond L. Arthur, Chief Financial Officer • Gregory B. Ahearn, Chief Marketing Officer and Executive Vice President Source: Businessweek

  19. Recent Financial Information Source: Capital IQ

  20. Recent Financial Information Source: Capital IQ

  21. Financial Analysis

  22. Financial Analysis

  23. Financial Analysis

  24. Recent Stock Performance Source: Capital IQ, Yahoo Finance

  25. Valuation — WACC Source: Yahoo Finance, Bloomberg

  26. Valuation — DCF

  27. Valuation — Comps. Source: Capital IQ

  28. Comps. Stock Chart Source: Yahoo Finance

  29. Decision Drivers • Strengths • Climbing Revenues • Strong Cash Position • Highly specialized • DCF ($8.57) • Concerns • Raising competition from big players • Seasonal fluctuations

  30. Recommendation Hold

  31. Questions?

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