Can LeapFrog Jump Over Amazon and Samsung?

LeapFrog Enterprises (LF.DL) will release its quarterly report on Monday, and investors have gotten increasingly nervous recently about the maker of learning-oriented toys. Despite moving beyond rivals Hasbro (HAS 0.22%) and Mattel (MAT 0.67%) in past years with its popular LeapPad line of kids' mobile devices, LeapFrog now faces the challenge of retaining its first-mover advantage as more-established makers of electronic devices look to capitalize on the lucrative children's market.

LeapFrog has come a long way in developing multimedia learning toys for young children up to age 10 or so, ranging from its Tag Junior reading system designed for kids as young as 1 year old to its Leapster Explorer handheld learning-game system. Yet even though Hasbro and Mattel haven't sought to compete with LeapFrog as much as investors might have expected, challenges are coming from Amazon.com (AMZN -1.14%) and other traditional tablet-makers looking to adapt their offerings for children. Let's take an early look at what's been happening with LeapFrog Enterprises over the past quarter and what we're likely to see in its report.

Stats on LeapFrog Enterprises

Source: Yahoo! Finance.

How will LeapFrog's key season go this year?
In recent months, analysts have modestly reduced their views on LeapFrog earnings, cutting both third-quarter and full-year 2013 and 2014 estimates by a penny per share. The stock, though, has plunged more precipitously, losing 25% since late July.

A big part of those declines came after LeapFrog's second-quarter earnings report, in which the company predicted the earnings slowdown that investors now expect this quarter. LeapFrog actually beat expectations by posting a narrower loss and double-digit percentage sales increases in all of its segments, but the toy maker's guidance for the remainder of the year left shareholders wondering whether the key back-to-school season would go well.

LeapFrog's innovation helped vault its growth well beyond Mattel and Hasbro two years ago when it first released its LeapPad. Increasingly, though, LeapFrog has faced some of the same struggles as broader-audience tablet-makers, with its new LeapPad Ultra having had some bugs in its release that led one analyst to downgrade the stock two months ago.

Even more important, LeapFrog's price point is starting to butt up against rival low-end all-purpose tablets. Amazon now offers a Kindle Fire that's cheaper than the LeapPad Ultra, and Samsung announced earlier this week that it will offer a kid-friendly tablet called Galaxy Tab 3 Kids. Samsung's price is well above the LeapPad Ultra, but it will add bundles of games and educational programs to justify the higher cost. With Amazon having acquired online math specialist TenMarks, it too could start moving more toward educational programming that would make the Kindle Fire more useful for children.

In the LeapFrog Entertainment earnings report, watch to see how the company is positioning itself strategically for the holiday season. With the key part of LeapFrog's year coming up, the toy maker needs to demonstrate how it will fend off increased competition and bolster growth.

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