Author Topic: LF - Leapfrog  (Read 20393 times)


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Re: LF - Leapfrog
« Reply #50 on: June 26, 2015, 09:17:32 AM »
After the last earnings call it looks like management is content to run this one into the ground.

I come up with $1.03 in net cash per share with the stock at $1.49. With another 102 million in current assets, mostly inventory and receivables, even if you discount those heavily the current share price seems cheap. LF seems ripe for an activist to come in and change course because the course current management has set for the company has done nothing but destroy shareholder value. A valuable brand, cash, relatively little debt, and other assets provide a decent margin of safety however it's eroding quickly.


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Re: LF - Leapfrog
« Reply #51 on: June 27, 2015, 10:13:03 PM »
I took a look at this company recently because it came up as very cheap on my screens. But there were two things that bothered me:

1) Management appears to be horrendous. This alone was enough to make me pass:
I never underestimate the incredible ability of bad management to destroy a company.

2) I think on the long run they will get swallowed whole by ipads, kindles and other devices. My nephews play on an ipad.
« Last Edit: June 27, 2015, 10:15:01 PM by rukawa »


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Re: LF - Leapfrog
« Reply #52 on: August 07, 2015, 05:07:00 PM »
I initiated a position in this at $.97. I think the company has a decent chance to recover. Major faux-pas has led to a precarious position, but from the last earnings call their plan looks okay. No nonsense, just logical steps. I like that.

If they can execute successfully, this could be an 8-bagger in 5 years. I like the odds enough to roll the dice. It could get way cheaper still though,  I might then double up depending on the situation.

I wonder if I'm alone with the robots in this name too.


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Re: LF - Leapfrog
« Reply #53 on: August 07, 2015, 06:18:51 PM »
I think they are going under, fast, Patmo. This is only a good deal if there were an immediate liquidation. They have a $150m NCAV vs $120m EV and C/EV is 73%. That way they'll be ready to sell off the remainder of their inventory by Christmas and will be able to distribute everything by early-2016. They won't do this, of course, but I don't think they will see their 2016 fiscal year either way.

Google Search Trend (aligns surprisingly well with sales):

They lost ~$150m in 2014 and completely wrote-off goodwill and PP&E while paying all deferred taxes (pretty telling). 1Q15 revs have fallen another ~18% y/y on a -35% comp! They are going to lose more $ this year, probably -$100m - write-offs of inventory, A/R (only ~$100m; inventory just increased +$10m). I'm assuming $280m in sales and 30% margins (18% drop in sales). The loss comes to ~$92m so I'm rounding to ~$100m loss. I'm assuming the "capitalized content" is worthless and inventory & A/R are written-off 75%. I think management is waving a big, white flag.

Assuming a -$100m loss (-$39m, Q1) leaves LF with roughly $27m in cash. On 1/1/16 they should have a Balance Sheet of the following if they really experience 18% drop in sales:
$27m cash
$10m A/R
$20m Inventory
$12m Prepaid Expenses
$1m in deferred taxes
= $64m Assets and $52m Liabilities => $19m shareholder equity => $0.27   (assuming no BS surprises)

I wouldn't buy this for much more than $0.15 so you can actually have the christmas upside. A 25% drop in sales ($250m rev) would leave them with just $7m in cash and $0 equity, so even being price <$0.15 would be risky. Basically, LF is losing value of [($1-$0.27)/139 =] $0.00525 a day, a little more than half a $0.01/day. At $1, everyday that goes by without a liquidation announcement is going to cause NCAV to approach the projected BV above ($19m). I think the stock is priced for $420m FY15 sales and an immediate liquidation after Christmas, which would leave them with a projected $1.00 BV. This also represents a 33% sales increase y/y (1Q15 rev were -18% y/y).


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Re: LF - Leapfrog
« Reply #54 on: August 07, 2015, 07:12:47 PM »
Yeah, I have to agree here as well. Looked at this a while back and was scared away by how bad this management team is. Never ceases to amaze me how they can blow so much money..


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Re: LF - Leapfrog
« Reply #55 on: August 09, 2015, 01:53:19 PM »
I posted on this earlier, but was definitely wrong in my original assessment. I took my loss and largely closed out my position. The two things I miscalculated were:
1. Management's desire to rightsize the cost structure. They had some statements 6 months ago or so that they were reducing their workforce to cut costs. The more recent calls have emphasized growing revenue, basically to grow into their cost structure. They problem is they seem to keep pushing the tablets/electronics where they are no longer the leader (Apple, Samsung and Amazon all have good products with much cheaper apps). Based on Amazon rankings, it looks like vtech and others continue to take market share in the traditional educational toy arena. LeapFrog barely even shows up on the Amazon rankings for their category:
2. Shareholder influence: I assumed incorrectly that the Milkens would help steer this in the right direction. At one point they had a lot of family equity in this. For whatever reason they seem to have just given up on it. There's an activist firm (Blue Pacific) that is pushing for change, but without the Milkens on board they need almost 100% of the other shareholders to make a change.

Odd situation... learned some lessons on this one. ;)