Microsoft co-founder Bill Gates is the second-richest person in the world, worth an estimated $96 billion, thanks to the success of his software company. And while his wealth is an extreme example, if you had bet on Microsoft in its early days in the mid-1980s, your gamble would have paid off big time, too.
A $1,000 investment in Microsoft on the day of its initial public offering, or IPO, on March 13, 1986, would be worth more than $1.6 million today, according to CNBC calculations. That includes price appreciation and dividends.
Microsoft's stock prices as of November 19, 2018, at 1:02 p.m. ET. Click to enlarge
Microsoft was founded in 1975 by Bill Gates and Paul Allen, two friends from high school who bonded over their mutual love of computer science. Gates dropped out of college after his sophomore year at Harvard so he and Allen could focus on adapting BASIC, a popular programming language, for use on early personal computers.
By 1978, the company's year-end sales were over $1 million.
Information technology IBM hired Microsoft in 1980 to develop a non-exclusive operating system for its first personal computer. That system became MS-DOS, one of Microsoft's most profitable products ever. MS-DOS was used in all IBM computers at the time and also became the go-to operating system for almost every PC on the market.
Microsoft waited 11 years before going public, primarily because Gates wanted to retain as much control of the company as possible. It helped that Microsoft was so profitable that it didn't need outside money in order to grow.
Since Gates had begun selling shares and offering stock options to prospective employees in order to entice top talent, though, Microsoft President and Chief Operating Officer Jon A. Shirley projected that, by 1987, enough people would own Microsoft stock that the company would be forced to register with the SEC. Gates finally acquiesced to the idea of an initial public offering because the IPO would create a much wider, more liquid market for the company's shares.
Microsoft went public on March 13, 1986, at an opening price of $21 per share. However, "the first trade took place at $25.50 a share, an indication of the fierce demand for the stock," the Seattle Post-Intelligencer reported at the time.
Throughout the day, just over 3 million shares were sold. Originally, only 2.5 million were offered, but the number was raised to meet demand.
Both Gates and Allen immediately became multi-millionaires. Gates earned $1.6 million off the shares he sold and put a market value of $350 million on the 45 percent stake he retained, Fortune reports, making the 30-year-old one of the richest people in the country. Allen had left Microsoft years earlier but held onto a significant stake in the company.
Gates's wealth ballooned from there and, in 1987, he made history as the youngest person to ever become a billionaire. By 1995, his fortune had grown to $12.9 billion, making him, at 39, the world's richest man. He retained that title for years.
Gates ran Microsoft until 2000, when he stepped down as CEO in order to focus on philanthropy.
Even after leaving Microsoft, Allen remained a titan in the tech industry, as well as an influential member of the Seattle community. He died in October 2018 at age 65 from complications of non-Hodgkin's lymphoma.
Post-IPO, Microsoft continued to dominate the software industry. On the heels of the release of Windows 2.0 in 1987, it became the largest software company in the world by sales.
Over the next few decades, Microsoft continued to innovate and expand its scope. One of its most successful releases came in the in the mid-90s with the introduction of Windows 95. Microsoft sold an astounding 40 million copies in its first year. In 2001, the company introduced the Xbox, which was also an immediate hit and sold 1.5 million units in less than two months. The console grounded Microsoft in the video game space, and that became one of its most profitable divisions.
Microsoft has also faced plenty of setbacks over the years. In the late 90s, the company faced antitrust charges from the U.S. Department of Justice and, in the early 2000s, it released a string of unpopular products, including the Zune music player, Windows Vista operating system and Surface tablet.
When Satya Nadella took over as CEO in 2014, he began a major turnaround at the software company. From the beginning, Nadella embraced cloud computing and helped Microsoft emerge as a top competitor in the space, challenging Amazon Web Services and others.
Microsoft also expanded its reach through the acquisitions of professional networking site LinkedIn in 2016 and code-sharing service GitHub in 2018. The deals helped boost the company's user network and emphasize the new direction Microsoft has taken in recent years. The acquisition of GitHub, especially, showed the company's willingness to embrace new technology, even if it doesn't directly control it.
Since Nadella took over, Microsoft's share price has nearly tripled. It stands as one of the most powerful companies in the tech industry, with a market cap that rivals those of Amazon and Google.
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