Shares of LeapFrog Enterprises Jump Higher in Market Debut By Raymond Hennessey
Dow Jones Newswires
NEW YORK -- Jumping into what continues to be a murky market for new issues, LeapFrog Enterprises Inc. was a rare bright spot, trading sharply higher in its debut Thursday.
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Shares of LeapFrog, an educational-products company based in Emeryville, Calif. , opened on the New York Stock Exchange at $15.50 each. That was 19% above the $13-a-share price set on its initial public offering of nine million shares.
In late-morning trading on the New York Stock Exchange, LeapFrog shares were trading at $16.65 apiece.
The offering, led by Merrill Lynch & Co . and Citigroup Inc. (NYSE: C - News) 's Salomon Smith Barney, priced at the low end of a range of $13 to $16 a share.
That was actually a stronger pricing than it might seem on first glance. LeapFrog was the only one of the seven IPOs in July to price its offering without having to either cut price expectations or sell the deal below expectations.
"Like everyone else, I certainly wish the markets were doing better," said Michael Wood, LeapFrog's president and chief executive. "But we're very proud that despite all of that, we're going to complete a successful IPO today."
LeapFrog is best known for its LeapPad, a storybook-sized interactive system that lets kids navigate a series of books teaching them everything from phonics to math to Scooby-Doo and Liszt.
There are other learning platforms, as well, for a range of age groups. For instance, the company sells the Turbo Twist handheld device for grades one through five, the iQuest interactive handheld device for middle school students, and My First LeapFrog, for children ages 3 to 5.
It's not just through the LeapPad or other platforms where LeapFrog gets its revenue. It has a large supply of books and software that go with the systems, plus products that allow users to download new activities from the Internet.
One need only look at its revenue growth to see how the LeapFrog phenomenon has taken hold. In 1999, the company booked $71.9 million. That figure more than doubled in 2000 to $160.1 million and came close to doubling last year, coming in at $313.7 million.
The business in the past has been profitable. LeapFrog earned $10.1 million last year.
Recently, however, it has reported losses. Financial statements haven't formally been released for the second quarter, but LeapFrog recently said it expects to report a net loss in the second quarter of $7.5 million, compared with $7.4 million in the second quarter of last year.
Most of its sales, though, traditionally come in the third and fourth quarters, through holiday-related sales.
The business has not been without its hiccups. Last year, 78% of all sales came through Wal-Mart Stores (NYSE: WMT - News) Inc. , Toys "R" Us Inc. , Kmart Corp. ( KM) and Target Corp. (NYSE: TGT - News) .
Kmart, though, filed for Chapter 11 bankruptcy protection in January. By the end of 2001, Kmart owed LeapFrog $11 million, and LeapFrog has already written off $6.4 million of that. Kmart has made payments and allowances of another $2.5 million, leaving an outstanding exposure of $2.1 million.
For the future, LeapFrog's Mr. Wood said the company is "very proud that this fall we're going to have our own LeapFrog Learning Centers at the major retailers." But, the company is also testing a new sales channel: major bookstore chains, Mr. Wood said, which would increase product distribution.
LeapFrog's offering got a fair bit of attention because of the entity that owns the company. About 83% of the voting control in LeapFrog is owned by education company, Knowledge Universe Inc., the loose confederation of education-related companies cobbled together by Michael Milken, best known for going to jail after the junk-bond debacle in the 1980s, his brother Lowell, and Oracle Corp. head Larry Ellison.
The company has a range of holdings, including distance-learning unit UNext, and k12, an Internet-based elementary and secondary program developed by former Education Secretary William Bennett.