The iPad Is Crashing, but This Tablet Maker Got Hit the Hardest

Tablet sales are slumping, but it's not just the iPad that's suffering.

Aug 5, 2014 at 6:04PM

This isn't the tablet's finest hour. Apple's (NASDAQ:AAPL) iPad is coming off back-to-back quarters of declining sales. Best Buy's CEO told Re/code last week that tablet sales in general are crashing

But no one seems to be having as hard a time in today's dicey tablet climate as LeapFrog Enterprises (NYSE:LF). Yes, that LeapFrog. The maker of electronic learning toys became an unlikely player in this space with the successful debut of the original LeapPad tablet in 2011. 

The kid-friendly tablet was limited, of course. It was restricted to running LeapFrog's learning apps. It didn't have unrestricted access to the Web. It was just an evolutionary step from its flagship edutainment offerings, giving young children the form factor of a tablet complete with a sturdy touch-screen frame. 

The price was right. At $100 it was half the price of the Kindle Fire, which was making waves as an entry-level device, and a fifth of the price of the trendsetting iPad. It was a hit. LeapFrog couldn't make it fast enough, forcing parents to scramble that holiday season to pay a premium through auction sites and other marketplaces. The LeapPad 2 was also a hit a year later. But by the time the LeapPad Ultra -- providing a more tabletlike experience with some Web-surfing features and a $150 price tag -- rolled out last year, the marketplace was changing. Some traditional Android-fueled tablets were even cheaper, and even Apple was starting to feel vulnerable.

Leappadultra

Source: LeapFrog Enterprises.

Take two tablets and call me in the mourning
Apple's in a tough spot with the iPad. The stock may have recently hit a two-year high and its iPhone and Mac sales are climbing nicely, but it's a different story for the iPad. 

Apple sold 16% fewer iPads during its fiscal second quarter -- ending in March -- than it did a year earlier. Apple conceded that orders had cooled off because retailers had too many unsold iPads on their hands after the holiday quarter. That's scary. But instead of seeing the consumer tech giant bounce back in its most recent quarter, Apple posted a 9% decline in iPad units sold in its fiscal third quarter.

That's bad, and while tablet sales in general have started to get challenging -- presenting an opportunity for laptops and other portable PCs to win back the market -- no one has it as bad as LeapFrog.

LeapFrog is reporting that consolidated net sales plunged 43% in its latest quarter, and sales are falling even harder domestically. LeapFrog didn't specifically break down how much of the decline is coming from its tablets relative to its other product lines, but the word "tablet" was mentioned 57 times during Monday night's call. 

LeapFrog hopes to get things right with the new LeapPad 3 and LeapPad Ultra XDi, but even it's holding back on the more conventional consumer electronics tablet that it was going to roll out in time for the holidays this year. That device won't hit the market until sometime after March of next year at the earliest.

Innovate your way out of this mess
Investors in both Apple and LeapFrog hope that new product categories will help drive growth later this year, offsetting the fade in tablet popularity. Apple is tight-lipped about the potential for wearable computing and making a bigger splash on TV, but LeapFrog isn't as secretive. We know that the LeapBand -- LeapFrog's push into fitness tracking -- and the LeapTV video game console are coming.

Given the way that LeapFrog has been beaten down after a string of terrible reports -- the stock has shed nearly half of its value since peaking two summers ago -- it's always possible that LeapBand or LeapTV can move the needle if either one is a hit this holiday season. But LeapFrog needs a new hit, unlike Apple, which is thriving on two other fronts as its tablets languish and its product pipeline flows in stealth mode. LeapFrog may be the iconic brand in electronic learning, but it's the one getting schooled these days.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and LeapFrog Enterprises. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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