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Baby Breaker Birth Announcements

Welcome back to Baby Breakerdom! This week's quest to uncover budding Rule Breakers finds us taking a digital passage to India and opening a new packet.

First up this week is Guruji, which professes to be the first search engine specializing in websites that cater to the interests of the more than 1 billion residents of the Indian subcontinent. Specifically, Guruji's technology combines a crawler and a unique algorithm that, together, "automatically identifies India-related content on the Web and organizes it in such a way that you get the most relevant results fast," says the firm's website.

Sound interesting? It certainly did to legendary Silicon Valley venture firm Sequoia Capital. VentureWire reports that Sequoia provided $7 million in equity financing from the India fund it launched in concert with local financier Westbridge Capital Partners.

That can't be too surprising. Sequoia, after all, is the VC firm that funded both Google (Nasdaq: GOOG  ) and Yahoo! (Nasdaq: YHOO  ) . Guruji could be just as big an opportunity. Consider Baidu (Nasdaq: BIDU  ) , which last year delivered a moonshot IPO, and which has seen rapidly expanding margins and triple-digit revenue growth over each of the last three years.

Better still, Baidu seems to have eaten away at Google's once-dominant share of the Chinese search market. Local news agency Xinhua reported in September that Baidu had 62.1% of the market versus just 25.3% for Google. If true, that's a stunning turnabout: WebSideStory (Nasdaq: WSSI  ) , which specializes in website analytics, last year had Google commanding 56.6% of Sino searches, versus just 32.3% for Baidu.

Local expertise must count for something in China. And, apparently, also in India: Guruji's two founders, both of who are graduates of the highly regarded Indian Institute of Technology in Delhi, say that 65 million people on the subcontinent use search engines and that 90% of their queries are local in nature. Obviously, it's time to add this one to the IPO watch list.

Next up is Acme Packet (Nasdaq: APKT  ) , which went public this week with a moonshot IPO of its own. Shares of this budding Breaker -- which specializes in technology that improves the effectiveness of Internet Protocol (IP) networks -- were priced at $9.50 a stub but closed its first day of trading at $17.20.

I'll not belabor you with all the details of what Acme Packet does, since Foolish colleague Tom Taulli already did that. I'd rather focus on the valuation because, despite appearances, I think there's value to be had even at today's price of $15.85.

First, though, you have to believe that VoIP and Web-driven video constitute growth markets. That shouldn't be too difficult with Google's recent $1.6 billion purchase of YouTube. Infonetics Research says to expect even more growth; it calculates the three-year opportunity for Acme Packet's market at $571 million.

If true, and Acme Packet's market share drops from today's 42% to no less than 35%, the firm could earn $200 million in 2009 sales. Applying a 25% free cash flow margin (it stands at 32% today) to that total results in $50 million worth of 2009 FCF.

Capital IQ shows that Acme earned $18.8 million in FCF over the trailing 12 months. That total would have to grow an average of 32% annually over the next three-and-a-half years to reach $50 million. We can use that growth rate as a multiple to 2009 FCF, assuming that Acme continues to grow at that rate. Doing so results in a $1.6 billion market cap for Acme Packet by the dawn of 2010, up substantially from today's $900 million.

Share dilution could nullify returns from that growth, of course. So could intensified competition from router makers such as Cisco (Nasdaq: CSCO  ) and Juniper (Nasdaq: JNPR  ) . Nevertheless, I'm adding this stock to my watch list. Digital pick and shovel makers such as Acme have been very good to my portfolio over the years.

That's all for now. See you back here next week, 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 Breakers, and they've unearthed four multibagger stocks in two years as a result. Want to find who they are? Try the service free for 30 days and find out.

Fool contributorTim Beyersdidn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all the stocks he owns by checking Tim's Foolprofile. The Motley Fool'sdisclosure policyis a rebel with a cause.

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