Baby Breaker Birth Announcements

Welcome back to Baby Breakerdom! This week's quest to uncover budding Rule Breakers finds big deals in small places and a Breaker posing for its public debut.

First up is a pair of deals related to the white-hot mobile market. First, there's AdMob, which received an undisclosed first round of funding from Sequoia Capital to boost its mobile-advertising network. Second is Handango, which VentureWire says closed a whopping $60.5 million round from Institutional Venture Partners. Funds will be used to boost its platform for mobile content.

Both moves speak well for the future of computer-phone blends such as Palm's (Nasdaq: PALM  ) popular Treo. These "smartphones," as they're known, have become the target for an entire ecosystem of new software, creating an opportunity that some say stretch into the tens of billions. For example, a recent BusinessWeek article pointed to research that suggests that mobile-video-game makers could rake in as much as $8 billion by 2010. And IDC says that mobile TV, which is of particular interest to Nokia (NYSE: NOK  ) , will become a $1.5 billion business the same year.

Against that backdrop are both AdMob and Handango, each of which could profit handsomely from smartphone demand. But I'm a bit more intrigued by AdMob. Founded just a few months ago (!), AdMob has one of the most impressive websites I've seen in a start-up. It just reeks of business opportunity. For example, the home page keeps a running tally of ad views -- currently at more than 121 million -- and a real-time ticker that counts ads as they're accessed around the globe. So far, AdMob's network has growth by a monthly average of 98%.

Yet none of that is what has me most interested in the start-up. Nope, all I can think of is how Sequoia also funded Google (Nasdaq: GOOG  ) early on. I sense deep similarities between the companies, as if AdMob is what AdWords would be if it were applied to mobile networks instead of the Internet. Think I'm wrong? Time will tell.

Next up is Shutterfly, a photo-sharing and photo-production service that my wife and I use frequently. The company recently filed an amended prospectus with the Securities and Exchange Commission in which it set the price for its forthcoming IPO at $13 to $15 a stub.

Could that be cheap? Maybe. According to Reuters, at $14 a stub the company would boast an initial market cap of $330.6 million, or roughly four times 2005 sales. But even that may be too aggressive an estimate. Here's why: Through the first six months of 2006, Shutterfly boosted net sales 34%. If that same growth rate holds all year, then Shutterfly should close the year booking $112 million in revenue for a forward price-to-sales ratio of just 2.9.

Similarly sized companies and microcaps that are growing sales by more than 30% annually -- such as U.S. Global Investors (Nasdaq: GROW  ) and VitalStream (Nasdaq: VSTH  ) -- typically trade for much more generous multiples; often 5 or better.

Still, plenty could go wrong, with all of the competition Shutterfly faces. And that would explain the low multiple. Its competitors include Eastman Kodak (NYSE: EK  ) , Hewlett-Packard (NYSE: HPQ  ) , Sony (NYSE: SNE  ) , and big-box retailers such as Costco (Nasdaq: COST  ) . Any of them could make Shutterfly's pretty picture get ugly pretty quickly. Invest accordingly.

That's all for now. See you back here on Friday, when we continue the quest to find the next ultimate growth stock.

For more Rule Breaking Foolishness:

High-tech. Biotech. Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all forMotley Fool Rule Breakersselection, and they've unearthed four multibagger stocks in fewer than two years as a result. Want to find what they are? Try the service free for 30 days and find out.

Fool contributorTim Beyersowns shares of Nokia. Get the skinny on all of the stocks he owns by checking Tim's Foolprofile. Costco and Palm areMotley Fool Stock Advisorpicks. The Motley Fool'sdisclosure policyis a rebel with a cause.


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