Leapfrog Enterprises Inc.November 14, 2013

Yi Liu, Ye Liang, Charalampos Ntantanis, Caleb Pierson

AgendaCompany Background

Current Position

Macroeconomic Outlook

Industry Overview

Financial Analysis

Valuation

Recommendation

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%

Macroeconomic OutlookWorld (and U.S.) population is growing across the toy consumer age rangeDollars spent on toys increased 7.68% from 2007 to 2012Youth electronics decreased slightly from 2011 to 2012Nostalgic/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.

Industry OverviewThe 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

5 Forces for Toys and GamesSource: Marketline

Source: Marketline5 Forces Analysis

Buyer PowerSupplier PowerThreat of New EntrantsThreat of SubstitutesDegree of RivalryModerateModerateModerateHighHighIndividuals have relatively little impact Few large manufacturesPatents help protect ideas Knock off goodsMany companies offer productsCost of switching is lowSuppliers are unlikely to forward integrateEasy to self produce and marketCost of switching is lowShort lived popularity

Company OverviewLeapfrog 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 basisSource: Company Website and 2012 10k

Business Segments and OperationsUnited States: 73%, 75%, 80% in 2012, 2011and 2010

Three large retailers: Wal-Mart Stores, Inc. Toys R Us, Inc. and Target Corporation

InternationalUnited Kingdom, France, Canada, Mexico, Australia, South Africa and Spain.Source: 2012 10k

Product PortfolioSource: Company Website

Product PortfolioCurrently 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 -- $120GS and Explorer -- $70eBooks -- $25 to $170 bundlesToys -- $10 to $25Apps -- $0.99

Source: Company Website

Risk FactorsHighly 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

SeasonalitySource: 2012 10k

SWOT analysis

StrengthWeaknessesPortfolio of patents

Strong operating record

Strong growth in LeapFrog school houseHighly dependent on few manufacturers

Pending litigation

Client concentrationOpportunitiesThreatsStrong cash reserves facilitate new product development

Growing ESOL (English to Speakers of Other Languages) population in US

Leverage strategic relationshipsCompetition

Seasonal fluctuations

Absence of long-term agreements with retailers

Management OutlookA 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

Major Shareholders

Source: Yahoo finance

Top Institutional Investors (over 5%)Wellington Management Company, LLP6,363,0819.8662,612,717Jun 30, 2013Wells Fargo & Company4,539,5157.0344,668,827Jun 30, 2013Franklin Resources, Inc4,285,9706.6442,173,944Jun 30, 2013Vanguard Group, Inc. (The)3,811,1295.9135,900,835Sep 30, 2013

Major ShareholdersWell known financial institutions

Source: Yahoo finance

Top Mutual Fund HoldersFranklin Templeton-Templeton Global Smaller Companies Fund2,663,3804.1325,089,039Sep 30, 2013Templeton Global Smaller Companies Fund, Inc. (USA)2,663,3804.1325,621,715Aug 31, 2013Oppenheimer Global Opportunities Fund2,500,0003.8724,600,000Jun 30, 2013Wells Fargo Advantage Discovery Fd2,254,8003.4921,691,176Aug 31, 20

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

Recent Financial Information

Source: Capital IQ

Recent Financial Information

Source: Capital IQ

Financial Analysis

Financial Analysis

Financial Analysis

Recent Stock PerformanceSource: Capital IQ, Yahoo Finance

MetricValueCurrent Price $8.13Trailing P/E7.03Forward P/E20.64Market Cap ($mil)$560.32

Valuation WACC Source: Yahoo Finance, Bloomberg

Valuation DCF

Valuation Comps.Source: Capital IQ

Comps. Stock ChartSource: Yahoo Finance

Decision Drivers

StrengthsClimbing Revenues Strong Cash PositionHighly specializedDCF ($8.57)

ConcernsRaising competition from big playersSeasonal fluctuations

RecommendationHold

Questions?

http://www.bloomberg.com/news/2013-11-08/consumer-sentiment-in-u-s-declined-in-november-to-two-year-low.htmlhttp://www.toyassociation.org/TIA/Industry_Facts/Population_Data/IndustryFacts/Population_Data/Youth_Population_Projections.aspx?hkey=5f0d47ce-261f-4f06-9675-41382d6eb18c****