It was 20 Years Ago Today

Microsoft went public. Believe it or not, you couldn’t even use margin to buy Nasdaq stocks back then.
Bill Gates initially didn’t want to go public and he held it off as long as he could. The problem he had was that many of his employees were worth tons of money on paper, but they had no way to sell their shares. Could you imagine employees striking unless the company goes public? How would Marx have explained that one?
Since the company didn’t need to raise much money, the offering was pretty small. They floated about 3 million shares priced at $21 a share. The IPO was a big hit and MSFT closed trading on March 13, 1986 at $28 a share.
The stock didn’t do much for the first six months.
However, things started to move and since then, MSFT has split nine times, seven 2-for-1’s and two 3-for-2’s. That comes to 288-for-1. So that $21 offering was worth 7.29 cents.
The stock reached its all-time high close on December 27, 1999 at $59.56 (split adjusted). (On December 30, the stock reached an intraday high of $59.97.) Basically, the stock gained an average of 1% a week for 14 years.
Microsoft fell back to $20 a share, and has been remarkably flat for the past few years. The stock has bounced between $22 and $30 for the most of the last four years.
The company started paying a dividend three years ago. Also, there was the gigantic $32 billion special dividend that the company paid out in late 2004. That payment was close to the $38 billion that the government paid out in tax rebates in the summer of 2001.

Here’s a chart showing the trailing four quarters of Microsoft’s sales, gross income, operating income and net income (in thousands). You can really show how the business started to level off at the beginning of the decade.

The amazing part of Microsoft’s business is its gross income. The teeny space between the black and green lines shows how little it costs Microsoft to makes its software. Microsoft’s gross income is usually over 80%. It’s actually gotten higher over the years.
At the beginning of the decade, Microsoft had a trailing P/E ratio of over 70. Today, that number is down to 22.

Posted by Eddy Elfenbein on March 13th, 2006 at 12:02 pm

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