LeapFrog 2013 Annual Report Download - page 18
Download and view the complete annual report
Please find page 18 of the 2013 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.ITEM 1A. RISK FACTORS
Our business, financial condition and operating results can be affected by a number of factors, including those
described below, any one of which could cause our actual results to vary materially from recent results or
from our anticipated future results. In addition to other information contained in this Annual Report on
Form 10-K and our other filings with the SEC, the following risk factors should be considered carefully
before you decide whether to buy, hold or sell our common stock. Additional risks not presently known to us
or that we currently deem immaterial may also impair our business, financial conditions, results of operations
and stock price.
Our business depends on our ability to correctly predict highly changeable consumer preferences and
product trends.
The preferences and interests of children and families evolve quickly, can change drastically from year to year
and are difficult to predict. Even our successful products typically have a relatively short period of high
demand followed by a decrease in demand as the product matures. For example, net sales of the Leapster2
platform peaked in 2010 and are no longer material to our overall sales. We depend on our ability to correctly
identify changing consumer sentiments well in advance and supply new products that respond to such changes
on a timely basis. We also rely on our ability to identify third-party entertainment media that is likely to be
popular with consumers and license rights to such media to incorporate into our products. In addition, we
need to be able to accurately forecast sales of these products in order to optimize our production schedules
and manage our inventory. Since our products typically have a long development cycle, in some cases lasting
over a year, it can be difficult to correctly predict changing consumer preferences and accurately forecast
optimal production and sales targets for these products. If we are unable to correctly predict consumer
preferences, successfully integrate popular third-party media with our own or accurately forecast sales targets
for our products, it could negatively impact our current and future operating results.
To remain competitive and stimulate consumer demand, we must continue to develop new products and
services and successfully manage frequent product introductions and transitions.
Due to the highly volatile and competitive nature of the industries in which we compete, we must continually
introduce new products and services, enhance existing products and services, and effectively stimulate
customer demand for new and upgraded products. In 2012 and 2013, we introduced a number of new products
to the market that represented a substantial portion of our 2013 sales. We cannot be sure that any new
products or services will be widely accepted and purchased by consumers or that we will be able to
successfully manage product introductions and transitions. Failure by consumers to accept our new products
and services or to pay a higher price for some of our key products, or our failure to manage product
introductions and transitions, could adversely affect our operating results.
If we are unable to compete effectively with existing or new competitors, our sales and market share
could decline.
We currently compete in the learning toy and electronic learning-aids categories of the U.S. and international
toy market, with makers of children’s tablets and, to a lesser extent, with general purpose eBook readers,
mobile devices and mobile game platforms. Each of these markets is very competitive and we expect
competition to increase in the future. The increasing choices for children’s educational entertainment can make
it difficult for us to differentiate our products from our competition, causing consumers to select a competitor’s
products.
We face the challenge of competitors introducing similar products or functionality soon after we introduce our
new products or product lines, and these competitors may be able to offer their products at lower prices using
cheaper manufacturing processes or materials, more limited functionality, or reduced safety features. In
addition, we focus heavily on the educational aspect of our content, ensuring that each piece of content is
based on age-appropriate educational curricula. In contrast, many of the competitors seek to compete primarily
through aggressive pricing and low cost content. Furthermore, with the availability of inexpensive children’s
content available on different digital platforms, the distinction between children’s tablets, like the LeapPad
products, and a general purpose tablet with child-focused content could become eroded. For example, in 2012
and 2013 our LeapPad products faced competition from several tablets designed for children and from
10