I wrote an article recently outlining why I have continued to buy LeapFrog (LF) in 2013. Since I wrote the article, LeapFrog posted another impressive quarter, launched a new product, and has posed itself nicely as a cash machine. The stock has continued to lag behind Mattel (MAT) and Hasbro (HAS) in percentage growth this year. Why?
In this short article, I'd like to offer my controversial hypothesis that LeapFrog's Financial Planning & Analysis (FP&A) team or lack thereof is the primary reason that the LeapFrog stock continues to suffer.
What is FP&A?
FP&A is the mechanism by which a company provides decision support to its management in envisioning short and long-term goals, assessing their viability and guaranteeing their success through continuous supervision. FP&A is the function that helps the management team take significant decisions concerning to the profitability and other financial well being of an organization. It also provides necessary material to the management in envisioning the future of the organization.
The FP&A team accommodates to numerous divisions like Operations, Human Resources, Corporate, Finance, Sales, Marketing, etc. It is that strand of every organization that binds various divisions together and ensures accomplishment of its common goal.
My review of LeapFrog's FP&A team:
1) It's still unclear if LeapFrog has an FP&A team. Searching through LinkedIn yielded one result, but it's ambiguous as to how long it's been since the profile has been updated. Furthermore, LeapFrog is hiring multiple FP&A Management positions, including a FP&A Manager and a Senior FP&A Manager. I give accolades to the LeapFrog management team because it understands that the company has a significant gap and is trying to fill that gap.
2) High Single-Digit Percentage Growth Rate. When LeapFrog announced its first quarter results, the management team gave traditional weak guidance, "Net sales to increase at a high single-digit percentage growth rate compared to 2012." Wall Street wants concrete numbers, individual investors want concrete numbers, everyone wants concrete numbers, but LeapFrog delivered numbers that were as revealing as a presidential candidate's answer to a controversial question.
3) LeapFrog has a history of terrible estimates. Remember LeapFrog's "High Single-Digit Percentage Growth Rate" given during LeapFrog's FY2012 guidance. Remember LeapFrog's sales FY2012 results. Estimating toy sales is not easy given the difficult nature of product demand and the attractiveness of product offerings, but sales estimates for a company of LeapFrog's size being off by nearly $100M is shameful.
Conclusion: As a long-term investor in LeapFrog, I implore all FP&A heavy hitters to apply to LeapFrog. The LeapFrog FP&A Management Salary is quite generous and headquarters is situated in the beautiful city of Emeryville just outside of San Francisco. Most importantly, I believe that the person who fills this position will have more power to influence the price of the stock than the CEO himself.